{"id":351100,"date":"2010-02-22T13:22:06","date_gmt":"2010-02-22T18:22:06","guid":{"rendered":"tag:http:\/\/www.economist.com,2009:21004962"},"modified":"2010-02-22T13:22:06","modified_gmt":"2010-02-22T18:22:06","slug":"emf-roundtable-wrapping-up","status":"publish","type":"post","link":"https:\/\/mereja.media\/index\/351100","title":{"rendered":"EMF Roundtable: Wrapping up"},"content":{"rendered":"

OVER the past few days, several economists, both in America and Europe, have weighed in on Daniel Gros and Thomas Mayer’s proposal<\/a> for a European Monetary Fund (EMF). They have raised questions both about the need for an EMF in principle, and about its feasibility and usefulness in the present context, i.e. Greece’s troubles. I think it’s fair to say that Messrs Gros and Mayer’s ideas came in for a good deal of criticism from our invited experts on all these counts.<\/p>\n

The guest piece argued that:<\/p>\n

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The difficulties facing Greece and other European borrowers expose two big failures of discipline at the heart of the euro zone. The first is a failure to encourage member governments to maintain control of their finances. The second, and more overlooked, is a failure to allow for an orderly sovereign default.<\/p>\n<\/blockquote>\n

Our commenters were by and large unconvinced that that there was a need for a new institution to do what existing institutions were already doing bits of. This applied particularly strongly to the idea of the EMF as a way to enforce fiscal discipline.<\/p>\n

Desmond Lachman wrote<\/a>:<\/p>\n

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“What is even less clear is why Gros and Mayer would want to reinvent the wheel by creating a European Monetary Fund, when one has the International Monetary Fund that already has the expertise to impose the appropriate conditionality on lending to wayward countries like Greece”<\/p>\n<\/blockquote>\n

But maybe the EMF would do a better job than the IMF? Edwin Truman was sceptical, saying that “if the EMF were tougher than the IMF is on average in terms of its economic and financial conditions, then Euro area countries would prefer to go to the IMF for assistance”.<\/p>\n

Tyler Cowen argued<\/a> that the “underlying problems of European multilateral governance” are unlikely to “be solved by creating an entirely new and different institution”. He would rather the ECB were reformed by broadening its focus beyond price stability, than an EMF set up. Carmen Reinhart worried<\/a> about the ECB and the EMF (if one were indeed to be set up) butting heads.<\/p>\n

Our commenters were also not convinced an EMF would work. Roberto Perotti, for example, argued<\/a> that:<\/p>\n

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(B)y the authors\u2019 calculations this facility would today give Greece access to something like .65 percent of its GDP … plus any additional discretionary fund from the pool of all accumulated savings. However, .65 percent of GDP would make no difference to Greece today; and … the intervention needed would eat up the whole fund just for a small country like Greece. The key problem country, Spain, with a public debt just above the Maastricht level this year, would have made virtually no contribution to the EMF. In the end, effective intervention, especially when the risk of contagion is high, is likely to depend on the discretion of Germany and other non-problem countries, just as it does now.<\/p>\n<\/blockquote>\n

Ms Reinhart, though, was a bit more supportive of the second bit of the proposal, relating to orderly sovereign defaults. She argues that a regional institution would indeed “be filling a gap in the existing financial architecture”. But she would like their proposal to go beyind sovereing debts to thinking about how to sort out” the messy blur that currently exists between public and private debts: the “quasi-sovereigns”” During crises, she points out, “private debts often become public ones”.<\/p>\n

Then, of course, is the question of feasibility, given where we are now. Could such a fund even be set up? Several commenters pointed out that any negotiations to set up a new institution would be protracted and messy. Mr Lachman argues that<\/p>\n

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(I)t is fanciful to think that markets will patiently hold onto their Greek paper while the Europeans take their sweet time to set up as far-reaching an institutional change as Gros and Mayer are now proposing<\/p>\n<\/blockquote>\n

Mr Cowen also argued that conditions are hardly ideal for the negotiations surrounding an EMF-type institution – winners and losers are too clearly known ex ante<\/em>, whereas ideally such negotiations would be done behind a “veil of ignorance”. More generally, several experts argued that the problem is a political one, not a technical one: what needs to be done is known; how to do it is a matter of politics.<\/p>\n

So what might be done? Mark Thoma suggested<\/a> fiscal federalism as part of a solution to the euro-zone’s problems, but was realistically pessimistic about its prospects. But most would appear to agree with Jean Pisani-Ferry, who wrote<\/a>:<\/p>\n

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The real choice at least in a first step is between IMF and EU assistance. As the EU in this respect has no legal basis, no mechanism, no financial instrument and no track record, a strong case can be made for calling in the IMF<\/p>\n<\/blockquote>\n","protected":false},"excerpt":{"rendered":"

OVER the past few days, several economists, both in America and Europe, have weighed in on Daniel Gros and Thomas Mayer’s proposal for a European Monetary Fund (EMF). They have raised questions both about the need for an EMF in principle, and about its feasibility and usefulness in the present context, i.e. Greece’s troubles. I […]<\/p>\n","protected":false},"author":5692,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[7],"tags":[],"class_list":["post-351100","post","type-post","status-publish","format-standard","hentry","category-news"],"_links":{"self":[{"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/posts\/351100","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/users\/5692"}],"replies":[{"embeddable":true,"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/comments?post=351100"}],"version-history":[{"count":0,"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/posts\/351100\/revisions"}],"wp:attachment":[{"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/media?parent=351100"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/categories?post=351100"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/tags?post=351100"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}