If nothing else, a positive aspect of Greece’s plight has been the wave of ideas on how the eurozone could operate more effectively in the future.
A big shortcoming identified by many has been the lack of proper “crisis management” procedures, which have arguably exacerbated Greece’s difficulties. Now – just in time for the EU leaders’ summit in Brussels this week – comes an ingenious solution for a European Monetary Fund, put forward by Daniel Gros, director of the Brussels-based Centre for European Policy Studies, and Thomas Mayer, chief economist at Deutsche Bank.
Their idea is for a sort of eurozone version of the International Monetary Fund, which could provide emergency loans to struggling countries or ensure a default was orderly, with minimum effect for other eurozone countries. It would be funded by contributions from countries in the weakest financial position, calculated according to how grievous was their abuse of the EU’s fiscal rules as set out in its ”stability and growth pact”.
An attraction of the proposal is that it provides a neat answer to the “IMF or EU?” question. While the IMF has lots of experience in rescuing countries, its deployment to help a eurozone country such as Greece would worry those who thought the eurozone should sort out its own problems (“Washington: butt out”). But the European Commission, the EU’s executive arm, is ill-equipped for such a task.
Gros and Mayer add that a European Monetary Fund would protect the interests of countries such as Germany, which currently face a “lose-lose” situation. If Greece goes under, either they help pay the cost of a bail-out, or they allow a collapse – and their banking system bears the brunt of the impact.
Another alluring feature of their plan – which could appeal to the European Central Bank – is that by allowing the orderly bankruptcy of a eurozone country, it minimises the problems of “moral hazard” (by which Greece is encouraged to act recklessly because it knows there will be an eventual bail-out). As the authors conclude: “We should by now have learned that policy should not be geared towards preventing failure, but preparing for it.”
