Euro Zone

Time for a European Monetary Fund

  • Why it matters

    Why it matters

    Without a new, powerful institution in the form of a European Monetary Fund, the euro zone risks being unable to offer assistance to Italy, its third-largest member country, or other euro-zone countries in crisis.

  • Facts


    • In 2010, Finance Minister Wolfgang Schäuble floated the idea that euro zone members should be granted emergency liquidity aid from a “European monetary fund” to reduce the risk of defaults.
    • France has long been proposing that the euro zone be provided with a budget for helping individual member states faced with economic shocks.
    • The IMF has made it clear it will no longer be involved in future rescue programs for euro-zone countries in crisis.
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German Finance Minister Schaeuble attends a presentation of a newly designed 2-Euro coin at the Chancellery in Berlin
It's time for another go at the European Monetary Fund, Mr. Schäuble. Source: Reuters [M]

Germany’s finance minister first put the proposal on the table seven years ago: “Euro zone members could also be granted emergency liquidity aid from a ‘European monetary fund’ to reduce the risk of defaults,” Wolfgang Schäuble wrote on March 11, 2010, in the Financial Times. “A good and interesting idea,” Chancellor Angela Merkel quickly responded.

The idea was born out of necessity: In order to save the euro, the currency union had to rescue its member Greece from going bankrupt. In the end, Mr. Merkel decided upon another, smaller solution: the European Stability Mechanism (ESM), popularly known as the euro zone’s bailout fund, was born. It became Greece’s largest creditor by far.

For a long time, there was no further talk of a European Monetary Fund – until the start of this year, when Mr. Schäuble suddenly revived it. The long-time member of Ms. Merkel’s Christian Democratic party is now calling for turning the ESM into a European Monetary Fund, or EMF – and the chancellor is once again covering his back.

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