Is the EU about to embark on further “institutional tinkering”?
Civitas, 11 March 2010
As the European Union battles the current recession, Greece’s financial situation has reignited debate on the establishment of a European Monetary Fund (EMF), writes Natalie Hamill.
Proponents of an EMF emphasise that whilst EU officials had been aware of Greece’s failing financial situation for some time, there was no mechanism in place to prevent it from deteriorating. Calling on the International Monetary Fund (IMF) to alleviate a EU debt problem is out of the question because the EU is keen to avoid suggestions that it can’t keep its own house in order. The EU rigorously defends its “no-bailout clause”, but supporters of EMF argue that it could “step-in” to offer loans to debt ridden EU states, thus preventing a similar situation in the future.
However, two obstacles are likely to prevent the EMF becoming anything more than a blueprint – legality and funding.
There is strong disagreement as to whether establishing a EMF would require a full-scale change to the EU treaties, or simply a unanimous decision by all 27 member states. Thomas Mayer the chief economist at Deutsche Bank AG has spoken optimistically of the “enhanced cooperation” clause in the Lisbon Treaty as a possible legal foundation for the EMF. However EU Commission President Barroso and German Chancellor Angela Merkel have insisted that developing an EMF would entail a Treaty change.
Funding such an institution is less than straightforward. The coffers could be filled by fining states that break the Stability and Growth Pact regulations, such as the threshold which limits Eurozone countries’ total public debt to 60% of GDP. Enforcing fines could encourage governments to start controlling their debt, but this does not require a new EU institution – the SGP rules are already in existence and they simply need to be enforced. Axel Weber, President of the German Bundesbank, similarly believes the EMF would be “a sideshow that will distract from the necessary consolidation of budget deficits in struggling countries”.
An EU-wide tax has also been suggested, but states are loathe to surrender fiscal autonomy in the best of circumstances, so such a move is unlikely to gain support.
The EU has a habit of thinking that any crisis can be resolved with further integration. It is difficult to believe, however, that the EU would embark on another round of ‘institutional tinkering’ when the institutional changes of the Lisbon Treaty are still being enacted (EU politicians are currently battling to control the makeup of the Treaty’s new diplomatic service – the EU External Action Service (EEAS)). It is likely that the EMF proposal will fade away, to be remembered only in the face of another economic crisis.