Wolfgang Schäuble, Germany’s finance minister, is winning support for his European Monetary Fund idea. Going further than in an article he wrote for the Financial Times, Lorenzo Bini Smaghi, an executive board member at the European Central Bank, has told the Netherlands’ NRC Handelsblad, that Mr Schäuble’s proposal “seems very reasonable” and “deserves to be explored further”. His comments contrast with the much more sceptical tone taken by Jürgen Stark, his executive board colleague, and Axel Weber, Germany’s Bundesbank president.
Except the ECB has clearly taken a disliking to the proposed title. The words “monetary fund” obviously suggest the institution’s primary objective would simply be to dish out billions of euros to countries in trouble (Greece) – something to which the Frankfurt-based institution would object strongly. Mr Bini Smaghi sees its role of differently. “Not only must the management of the euro be enhanced, and given more powerful means for preventive action and sanctions, but we also need a financial mechanism. So that we are ready when the euro is attacked,” he said in the interview.
Germany’s Bundesbank is getting jumpy, and I am not sure it is doing Axel Weber, its president, many favours.
The cause of its agitation is the proposal for a European Monetary Fund by Wolfgang Schäuble, the country’s finance minister. Jean-Claude Trichet, European Central Bank president, has said the EMF idea is worth considering if it would make existing arrangements more effective. But the Bundesbank has set itself squarely against the proposal, which is aimed at making the eurozone better equiped to control future crises, such as currently being experienced (traumatically) over Greece’s finances. The proposal is simply a distraction at this stage, the Bundesbank believes.
What does the European Central Bank really think about an European Monetary Fund. The first public comments have been negative. Jürgen Stark, executive board member, argues in an article to appear in tomorrow’s Handelsblatt newspaper that such a fund would discourage fiscal discipline and violate eurozone principles.
But Mr Stark’s comments were his personal view, the ECB says. So far Jean-Claude Trichet, ECB president, has refused to comment publicly. After meeting global counterparts in Basel, Switzerland, earlier today, he said the idea had not been discussed at all. Last Thursday, he said the 22-strong ECB governing council did not have a position.
The impression I have is that there are divisions within the ECB that Mr Trichet has yet to smooth over. As I noted in a previous post,there are at many in Frankfurt who, in the wake of the crisis over Greece, would like to see more joined up thinking by eurozone political leaders – with a view to strengthening Europe’s 11-year-old monetary union. The ECB president himself seemed entirely happy with the pledge last month by eurozone leaders “to take determined and co-ordinated action, if needed, to safeguard financial stability in the euro area”. A European Monetary Fund would address the obvious weakness exposed by Greece in the eurozone’s “crisis management” capabilities.
No doubt, the devil will be in the detail.
From the FT and around the web:
Brussels ready to back fund – Financial Times