EU establishes its monetary fund to assist struggling member states

Greece was the trigger for the idea of creating a European Monetary Fund. If an agreement is reached, it will be the most extensive overhaul of the common European monetary system since 1999, when the euro was introduced.

writes Vanja Figenwald
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After weeks and weeks of clumsy maneuvering typical of the European Union, which seems to increasingly boil down to Germany and France, the EU has seemingly birthed a possible long-term solution to the problem caused by reckless Greek spending and hiding debt from the eyes of the world. The essence of the entire problem arose from the lack of a mechanism within the eurozone that would legally assist the wayward Mediterranean member, which, as partners in crime quickly realized, somehow must be helped since fewer and fewer believe that Greece will be able to curb its enormous deficit of 12.7 percent by as much as four percent and bring its criminal finances in order.

The eurozone, or the system of the common currency euro, has been flawed from the beginning, just as most things in the Union were flawed at the outset, as rain was not anticipated, but rather an expectation of sunny and clear weather for eternity. The imbalance of the system is likely obvious to everyone except the creators and members themselves. On one side, 16 members, with the prospect of expansion, share a monetary union under the watch of the European Central Bank and strict criteria and rules, but on the other, persistently close their eyes to the autonomy of national monetary policies, which now, in the midst of one of the worst crises that has revealed a whole range of shenanigans around the world, shows itself to be an unsustainable concept. One of the fundamental rules of the Maastricht agreement from the very beginning has been mutual non-assistance. Convenient when everything works well, but at the moment when the rules and system are truly tested, it is clear that the Union needs an additional monetary safety belt, especially since it is unrealistic to expect that so many members, each with their own approach to the economy and finances, will slide down the rules as if on grease.

Just not the IMF
The catch lies in the fact that it is a train, not a regatta, to use an analogy popular in the Union for some other processes, so the derailment of one car means the derailment of the entire composition, which cannot be allowed. It is therefore necessary to find a solution that will satisfy both form and the practical needs of the moment. Moreover, it is also a matter of European pride. Namely, in global frameworks, there are organizations, primarily the International Monetary Fund, that can take on the role that is now needed for the Greek problem, which could become a problem for Spain, Portugal, and Ireland, but Europeans have clearly indicated that they do not want external assistance. They are fed up, they think, with constantly appearing as a bunch of idiots who cannot agree on a solution when it is most needed. Interestingly, however, neither France nor Germany want to hear about the IMF, but when someone else is concerned, they are very willing to refer them precisely to that institution. It has not been long since various G meetings (G7, G20…), where the IMF was blamed for financing global problems arising from the crisis. It seems, however, that Europeans themselves do not trust it too much. The need for a quick and efficient solution has been further intensified by the reaction of the Greek people who have taken to the streets in large numbers and started clashing with the police, so in recent days, the idea has surfaced in the style of ‘why didn’t we think of this earlier’, according to which Europe would generally double the concept of the International Monetary Fund for the European area.

When it rains – it pours
The revolutionary idea was offered to the world by Wolfgang Schäuble, the German finance minister. A significant choice of messenger, considering that it is precisely Germany that has been observing the Greek situation with a very sour expression and masking its reluctance for deeper engagement from other members with calls for caution and thoughtfulness in reaction. In other words, France has, at least for now, managed to persuade Germany to engage more intensively in the whole matter. According to what Schäuble said to Welt am Sonntag, later confirmed by his boss Angela Merkel, the adjustments that would need to be made to establish the European Monetary Fund would be the most extensive overhaul of the common European monetary system since its inception in 1999, when the euro was introduced. French President Nicolas Sarkozy brilliantly hit the point of the problem ahead of his meeting with Greek Prime Minister George Papandreou: ‘We must help Greece because they are trying. If we created the euro, then we cannot allow a member state to fail. Otherwise, it made no sense to create the euro.’ And so Sarkozy revealed the fundamental flaw of the system launched in 1999, and it should be noted that France has warned from the very beginning about the evident deficiency. It seems no one thought – ‘what if’.

Maybe just a guarantor?
However, the matter is not so simple for several reasons. First, such an operation is not feasible in the short term, and it is questionable how much it would help Greece at this moment. Second, it seems that it would be necessary to change the fundamental documents of the Union, which causes cold sweat for most since they barely pushed through the Lisbon Treaty. Third, the Germans would like to be persuaded a little more because they are not entirely sure they are for it, even though they immediately offered punitive measures for irresponsible members. Some of the measures would include freezing participation in Cohesion Funds, suspension of voting rights at ministerial meetings, or even suspension of membership in the eurozone. The problem with this is that then France can hardly agree since they themselves are not an example of fiscal responsibility, as are many other members. There are no specific details about the structure of a possible fund yet, but one line, socialists in the European Parliament, envision a fund that would not have its own cash portfolio, meaning it would not take cash from members, but would function as a kind of guarantee fund with the possibility of borrowing money on global capital markets. This is just another example of the unsustainability and unseriousness of the European Union in regulating the key systems and processes on which it is based, under the system of ‘we will agree’, or constant avoidance of clear definitions, or taking action even when penalties and measures for those who do not respect their obligations are available. The principle of friendly persuasion clearly has its limits.