Designing a European Monetary Fund: what role for the IMF?

  • The so-called Troika, consisting of the EU-Commission, the European Central Bank (ECB) and the International Monetary Fund (IMF), was supposed to support the member states of the euro area which had been hit hard by a sovereign debt crisis. For that purpose, economic adjustment programs were drafted and monitored in order to prevent the break-up of the euro area and sovereign defaults. The cooperation of these institutions, which was born out of necessity, has been partly successful, but has also created persistent problems. With the further increase of public debt, especially in France and Italy, the danger of a renewed crisis in the euro area was growing. The European Stability Mechanism (ESM) together with the European Commission will replace the Troika in the future, following decisions of the EU Summit of December 2018. It shall play the role of a European Monetary Fund in the event of a crisis. The IMF, on the other side, will no longer play an active role in solving sovereign debt crises in the euro area. The current course is, however, inadequate to tackle the core problems of the euro zone and to avoid future crises, which are mainly structural in nature and due to escalating public debt and lack of international competitiveness of some member countries. The current Corona crisis will aggravate the institutional problems. It has led to a common European fiscal response ("Next Generation EU"). This rescue and recovery program will not be financed by ESM resources and will not be monitored by the ESM. One important novelty of this package is that it involves the issuance of substantial common European debt.

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Author:Thomas JostGND, Franz SeitzORCiDGND
Parent Title (English):Working paper series / Institute for Monetary and Financial Stability ; 151
Series (Serial Number):Working paper series / Institute for Monetary and Financial Stability (151)
Publisher:Johann Wolfgang Goethe-Univ., Inst. for Monetary and Financial Stability
Place of publication:Frankfurt am Main
Document Type:Working Paper
Year of Completion:2021
Year of first Publication:2021
Publishing Institution:Universit├Ątsbibliothek Johann Christian Senckenberg
Release Date:2021/02/09
Tag:European Monetary Fund; European Stability Mechanism; International Monetary Fund; euro area; euro crisis
Issue:February 2021
Page Number:32
Institutes:Wirtschaftswissenschaften / Wirtschaftswissenschaften
Wissenschaftliche Zentren und koordinierte Programme / Institute for Monetary and Financial Stability (IMFS)
Wissenschaftliche Zentren und koordinierte Programme / Sustainable Architecture for Finance in Europe (SAFE)
Dewey Decimal Classification:3 Sozialwissenschaften / 33 Wirtschaft / 330 Wirtschaft
Licence (German):License LogoDeutsches Urheberrecht