³ÉÈËÂÛ̳

The first incentive for the EMF kite-flyers is that it would be a "European" not an "international" fund. It cannot be overstated how much European officials fear an IMF bail-out of Greece or other countries. It would not just be a humiliation; it would be regarded as a verdict of no-confidence in the eurozone. The German Chancellor Angela Merkel said: "We want to be able to resolve our problems in the future without the IMF". The Greek government, as a way of putting pressure on its EU colleagues, occasionally flirts with going to the IMF.

The second attraction of an EMF is that it would amount to a plan for when eurozone countries slide into trouble. One of the problems when Greece was struggling to finance its deficit was that the markets sniffed uncertainty over how to deal with the crisis. There was no agreed mechanism to handle rescues or bail-outs.

Since the idea was first floated in a position paper and then in comments by the German Finance Minister Wolfgang Schaeuble there has been a rush to support it. The European Commission is drawing up proposals and Angela Merkel said it was "a good and interesting idea".

But in the same comments as that endorsement, the German Chancellor was also aware of the immense difficulties in giving birth to such a fund. "The questions of course must be asked: Who pays in, how does one pay in....." All is to be argued over, but the fund will have to be substantial.

There will be those who will suggest that the fund is supported by not just the 16 eurozone members but by all 27 countries in the European Union. "That idea simply won't fly in the UK," said one British official. However the fund is dressed up it will be regarded as a bail-out body for the euro and British taxpayers are most unlikely to want to make any contribution towards rescuing a currency they have little enthusiasm for joining.

It is the recognition that any EMF would have far-reaching implications for the whole of the EU that led Angela Merkel to put down an early marker. "Without treaty changes we cannot found such a fund. So we will need a treaty change." It was a bold statement and some officials are already recoiling at the prospect. Arguments over the Lisbon Treaty lasted eight years. Outsiders criticised the EU for its obsession with structures and being inward-looking. There is simply no appetite - particularly with the French - for another round of treaty changes, but such a significant institution cannot be simply drafted in. It would need the agreement of all member states.

Beyond all of this lies perhaps the biggest problem. A fund could be seen by some countries as a ready-made bail-out facility. It might encourage irresponsibility. It was a doubt raised by Juergen Stark, a member of the top executive committee of the European Central Bank. He said it would create a perverse incentive for countries not to clean up their balance sheets properly.

"Every country is accountable for its public finances and therefore its debt," he told a German newspaper. "It would be the start for a system of financial compensation that could become very expensive, set the wrong incentives and finally be a burden for countries with solid public finances."

So some are talking about the need for tough rules and penalties for countries that breached the fiscal rules. The French aren't sure about that, but the Germans will be wary of setting up a fund that becomes a way of skirting around the current "no bail-out" policy. The IMF has shown in the past it has teeth and can be a powerful enforcer. There are doubts about whether European leaders have the spine for this. Will they act the enforcer? Or will the fund allow for fudge and drift which, of course, lies at the heart of the euro's current problems?

Behind this debate about a European fund lies a widely-held belief that if the euro is to survive in its present form there will have to be closer economic integration, and that brings with it all kinds of controversies.

The European Monetary Fund idea is recognition that the current system does not work, but as a plan it is fraught with difficulty. It is by no means a straightforward option and will come far too late to solve the crisis in Greece.

• Bookmark with:
• |
• |
• |
• |
• - What's this?