The Political Case for a European Monetary Fund

The European Monetary Fund is a possible and, Angels would argue, necessary arm of the European Union, and more specifically of its inner core, the Eurozone.  The cries of  redundancy, derision and impossibility can be dealt with - indeed their forceful existence is a Greek chorus trying to warn against a necessary set of decisions to reinforce the foundations of the European currency and to strengthen European union.

The first wails are that the Fund would require an unthinkable  renegotiation of the Lisbon treaty if not Maastricht and even Rome: not at all. Setting up the Fund will require a treaty, a treaty that is an adjunct to Lisbon and will be far easier to achieve under Lisbon terms.  That the Fund treaty must negotiate its way through the constraints of Maastricht and the Growth and Stability Pact is a virtue for, like all living entities, earlier forms that assisted coming into existence are shed by later forms.

The second wails concern redundancy: why have a European Monetary Fund when the IMF exists already.  Precisely.  Those who see an identity of interest between the IMF and a European Monetary Fund are purblind.  Unlike a central bank, the IMF is not a lender of last resort, often severely regulated and that does not lend to governments but lends against sound assets.  The IMF in its role as lender to governments takes a claim over the only asset a government possesses - its tax revenues in the future.  In this it acquires a political and dominant role in the economy of a debtor country, determining the size of the tax base, the tax take, and expenditures.  It negotiates from a position of strength the fiscal politics and policies of debtor states.  A European Monetary Fund, in this activity, can provide and develop the European-wide, or Eurozone-wide common fiscal policy whose lack is deplored by those who argue that the Euro is not a properly-founded currency.  The IMF cannot be expected or trusted to perform this crucial function of the European Fund.

The third wails deny that fiscally well-conducted countries will accept formal responsibility for a feckless member-state: why should they not if the European Fund is set up to deliver fiscal discipline that benefits the Euro, an ever-closer European Union, and makes a profit for its shareholders (as does the IMF).

The wails of derision are propaganda from those who want the European ideal and its currency to  weaken in favour of global institutions of economic and fiscal management.  The trouble with global post democratic administration is that it leaves nowhere to leave for when its tyranny becomes unbearable  - as it will -  for it is a top-down ideology and attempted imposition,  rather than the 'devolution of powers to the lowest competent level under the rule of law' that is the EU.

Undeniably the negotiations will be complex, the fitting of the terms of the European Monetary Fund treaty to extant EU regulation will require  reinterpretation, good, as well as political, will, and a fair wind. But we have our Dottor Sottile who saw Europe safely through to Lisbon for the finest of drafting, we have still the guide who took the Euro through to realisation to negotiate the difficulties that will be thrown in its path.  Indeed it is Giuliano Amato and Romano Prodi who have been the first to advocate this next development.

The Europeans dealt with the assault upon Greece that Greek fiscal recklessness brought upon themselves and upon our currency with little more than reassurance and reprimand.  It is time to underpin the common currency with the fiscal sovereignty it requires at least within the Eurozone.  Those who are not members can congratulate themselves on being outsiders, and stop the awful wailing.

FURTHER

Cranmer has a fascinating post on the new Treaty that will be needed for the European Monetary Fund tripping referendums within the United Kingdom.  However, my understanding is that it is not Rome, Maastricht or their final embodiment in Lisbon that will be revisited; but a treaty will have to be instituted that regulates the European Monetary Fund because there exists no EU legal basis for something of this kind.  It is noteworthy that to some degree the European Union is already acting as if such an entity had some limited kind of shadow existence.