Building a European Monetary Fund

[evercloserunion]

There has been some discussion recently of the idea of building an EMF--a European version of the IMF--to bail out crisis-hit EU member states in the future. Some in Germany are pushing the idea, wanting to prevent a repeat of the Greek crisis and/or minimise the effects of such a crisis on the Eurozone in the future. But the issue is contentious; the French agree with the idea in principle but view it as a long-term rather than a short-term goal, primarily because it would require treaty change and that is a can of worms best left closed for a while after Lisbon.

Even in Germany there is not unanimous agreement, and Jürgen Stark--Germany's representative on the board of the ECB--disagrees with the idea. He thinks we should just better enforce budgetary restraints on member states and then we wouldn't need any bailouts. Whatever about the idea of an EMF generally, I think Stark is being extremely naive. Ireland was Europe's darling when it came to obeying budgetary rules during the boom, and look at us now.

The FT have good coverage of this but opinion is divided there. Chris Giles seems quite sceptical of the idea, as per the video here, saying that Germany wants to use it to "torture" member states into avoiding budgetary crises which threaten the Eurozone. But I think, aren't budgetary crises largely their own punishment? Member states already have an incentive to avoid Greece-like situations. Nobody wants to be in the position of FF or the Greek government right now. Besides, many countries who are now crisis-hit, such as Ireland, were being patted on the back for years by European and international governments and markets. (Greece would be a special case as they were falsifying their accounts.)

Another article in the FT supports the idea. That article puts forward some good arguments for an EMF; the gist of it seems to be that an EMF is the missing piece of the puzzle of European economic integration.

Myself, I'm still trying to figure out what the EMF would do that the IMF doesn't. I'd like to hear more about that.

[rockofcashel]

There has been some discussion recently of the idea of building an EMF--a European version of the IMF--to bail out crisis-hit EU member states in the future. Some in Germany are pushing the idea, wanting to prevent a repeat of the Greek crisis and/or minimise the effects of such a crisis on the Eurozone in the future. But the issue is contentious; the French agree with the idea in principle but view it as a long-term rather than a short-term goal, primarily because it would require treaty change and that is a can of worms best left closed for a while after Lisbon.

Even in Germany there is not unanimous agreement, and Jürgen Stark--Germany's representative on the board of the ECB--disagrees with the idea. He thinks we should just better enforce budgetary restraints on member states and then we wouldn't need any bailouts. Whatever about the idea of an EMF generally, I think Stark is being extremely naive. Ireland was Europe's darling when it came to obeying budgetary rules during the boom, and look at us now.

The FT have good coverage of this but opinion is divided there. Chris Giles seems quite sceptical of the idea, as per the video here, saying that Germany wants to use it to "torture" member states into avoiding budgetary crises which threaten the Eurozone. But I think, aren't budgetary crises largely their own punishment? Member states already have an incentive to avoid Greece-like situations and many countries who are now crisis-hit, such as Ireland, were being patted on the back for years by European and international governments and markets. (Greece would be a special case as they were falsifying their accounts.)

Another article in the FT supports the idea. That article puts forward some good arguments for an EMF; the gist of it seems to be that an EMF is the missing piece of the puzzle of European economic integration.

Myself, I'm still trying to figure out what the EMF would do that the IMF doesn't. I'd like to hear more about that.

The EMF wouldn't do anything that the IMF doesn't do.

Except, the EMF, if put in place as has been initially envisaged, would step in to control the monetary and budgetary actions of countries which use the Euro, so as to ensure that the misbehaviour of one or a number of states, does not have a knock on effect of destabilising the value of the euro relative to the non euro currencies.

Interestingly, in reports this morning, it was claimed that Angela Merkel said that to put into place an "EMF", would require amendments to be made to the Lisbon Treaty.. no doubt because the Lisbon Treaty didn't make specific reference to being possibly at some future time, a tool for interference in budgetary policy in member states.

But if amended it could. Would we get to vote on any "amendment" to the Lisbon Treaty.. or is that where the self amending clauses start to kick in ?

[sondagefaux]

What 'self-amending clauses'? Could you quote them in full please?

[evercloserunion]

Well as we've often discussed on here, the "self-amending" clause requires us to ratify as per our constitutional requirements. So if an amendment came under that clause it would depend on whether creating an EMF would come under the Crotty test. That would be an interesting question, but perhaps one best discussed elsewhere. Here I kind of wanted to ask people's opinion on whether or not we need/want an EMF at all.

[setanta]

But if amended it could. Would we get to vote on any "amendment" to the Lisbon Treaty.. or is that where the self amending clauses start to kick in ?

For crying out loud, Roc, you really should know better!

[ivnryn]

Another option would be to have a formal way to handle sovereign default.

All government bonds issued by Eurozone members would be subject to those rules.

For example, you could have a rule that if interest payments exceed X% (say 5%) of GDP, then all payments are rescaled so that only 5% of GDP is paid out (but that it counts as fully paid).

This would de facto make it harder for governments to over borrow, as the markets would know that a government which over borrows would end up not paying back the full bond value.

[He3]

Better to continue on the existing thread

http://www.politics.ie/economy/12532...discussed.html

[CookieMonster]

Interestingly, in reports this morning, it was claimed that Angela Merkel said that to put into place an "EMF", would require amendments to be made to the Lisbon Treaty.. no doubt because the Lisbon Treaty didn't make specific reference to being possibly at some future time, a tool for interference in budgetary policy in member states.

This the same Lisbon treaty we were told was comprehensively designed to meet the needs of the EU for the foreseeable future. The same Lisbon Treaty that we were told if we accepted it we wouldn't need another for a very long time? The same Lisbon Treaty we were assured wasn't just a rehash of the Treaty Establishing a Constitution for Europe?

[evercloserunion]

Better to continue on the existing thread

'European IMF' plan to be discussed

Ah, sorry about that I didn't see it.

Maybe this would be the perfect opportunity for one of our new mods to try out his new merging powers?

[CookieMonster]

What 'self-amending clauses'? Could you quote them in full please?

Article 48

1. The Treaties may be amended in accordance with an ordinary revision procedure. They may also be amended in accordance with simplified revision procedures.

Ordinary revision procedure

2. The Government of any Member State, the European Parliament or the Commission may submit to the Council proposals for the amendment of the Treaties. These proposals may, inter alia, serve either to increase or to reduce the competences conferred on the Union in the Treaties. These proposals shall be submitted to the European Council by the Council and the national Parliaments shall be notified.

3. If the European Council, after consulting the European Parliament and the Commission, adopts by a simple majority a decision in favour of examining the proposed amendments, the President of the European Council shall convene a Convention composed of representatives of the national Parliaments, of the Heads of State or Government of the Member States, of the European Parliament and of the Commission. The European Central Bank shall also be consulted in the case of institutional changes in the monetary area. The Convention shall examine the proposals for amendments and shall adopt by consensus a recommendation to a conference of representatives of the governments of the Member States as provided for in paragraph 4.

The European Council may decide by a simple majority, after obtaining the consent of the European Parliament, not to convene a Convention should this not be justified by the extent of the proposed amendments. In the latter case, the European Council shall define the terms of reference for a conference of representatives of the governments of the Member States.

4. A conference of representatives of the governments of the Member States shall be convened by the President of the Council for the purpose of determining by common accord the amendments to be made to the Treaties.

The amendments shall enter into force after being ratified by all the Member States in accordance with their respective constitutional requirements.[Ed: In the case of the establishment of a EMF it is, without detail, unclear if a would be a constitutional requirement for a referendum in Ireland or elsewhere]

5. If, two years after the signature of a treaty amending the Treaties, four fifths of the Member States have ratified it and one or more Member States have encountered difficulties in proceeding with ratification, the matter shall be referred to the European Council.

Simplified revision procedures

6. The Government of any Member State, the European Parliament or the Commission may submit to the European Council proposals for revising all or part of the provisions of Part Three of the Treaty on the Functioning of the European Union relating to the internal policies and action of the Union.

The European Council may adopt a decision amending all or part of the provisions of Part Three of the Treaty on the Functioning of the European Union. The European Council shall act by unanimity after consulting the European Parliament and the Commission, and the European Central Bank in the case of institutional changes in the monetary area. That decision shall not enter into force until it is approved by the Member States in accordance with their respective constitutional requirements.

The decision referred to in the second subparagraph shall not increase the competences conferred on the Union in the Treaties.

7. Where the Treaty on the Functioning of the European Union or Title V of this Treaty provides for the Council to act by unanimity in a given area or case, the European Council may adopt a decision authorising the Council to act by a qualified majority in that area or in that case. This subparagraph shall not apply to decisions with military implications or those in the area of defence.

Where the Treaty on the Functioning of the European Union provides for legislative acts to be adopted by the Council in accordance with a special legislative procedure, the European Council may adopt a decision allowing for the adoption of such acts in accordance with the ordinary legislative procedure.

Any initiative taken by the European Council on the basis of the first or the second subparagraph shall be notified to the national Parliaments. If a national Parliament makes known its opposition within six months of the date of such notification, the decision referred to in the first or the second subparagraph shall not be adopted. In the absence of opposition, the European Council may adopt the decision.

For the adoption of the decisions referred to in the first and second subparagraphs, the European Council shall act by unanimity after obtaining the consent of the European Parliament, which shall be given by a majority of its component members.