Germany is making plans for a European Monetary Fund that would act as a counterpart to the International Monetary Fund (IMF), according to sources in the German finance ministry.
Berlin wants funds to be dispersed without strings attached only in the case of an extra-systemic shock that is beyond a country’s political control. Technically, these no-string loans would be dispersed to countries with a deficit below 3% — or with at least 0.5% consolidation each year, for three years – and a debt-to-GDP ratio below 60%.
Under normal circumstances, distress funds will only be released under strict conditionality, ensuring there is no “moral hazard” in dispersing low-interest loans to EU member states.
The subscript of “moral hazard” is that loans extended should come at the cost of structural reforms that would make these special loans a distress fund, or a measure of last resort.
The German blueprint for the European Monetary Fund envisages a wider scope of action for the existing European Stability Mechanism.
During a press conference in Berlin on November 20, the German candidate for the Presidency of the European Commission, Manfred Weber, said that turning the European bailout fund into a European Monetary Fund should be on the EU Summit’s December agenda.
Weber said that Europe cannot hope that in the next Eurozone crisis that it will find the sort of cooperation that it enjoyed with US President Barack Obama now that Donald J. Trump is in the White House.