Head scratching over EU plans for EMF, helping Greece

March 17, 2010
IMF Managing Director Dominique Strauss-Kahn

IMF Managing Director Dominique Strauss-Kahn

It was no great surprise that the managing director of the International Monetary Fund looked perplexed when asked during a visit to Brussels to comment on proposals to create a European monetary fund.

 “I would be very happy to comment if I knew what it was,” Dominique Strauss-Kahn told a committee in the European Parliament.

He’s not the only person to find somewhat vague an idea that has been prompted by Greece’s debt problems but has come too late to help Athens.

Since German Finance Minister Wolfgang Schaeuble suggested this month creating a European monetary fund to help countries that have problems paying their debts, little flesh has been put on the bones.

Would it involve creating a separate institution? Where would the money come from? How much money would be needed to bail out struggling states? How long would it take to set up? Would it be based on a proposal last month by an economic analyst and the chief economist of Deutsche bank?

But vagueness, it seems, is very much the order of the day in Brussels. When EU finance ministers backed a standby plan for helping Greece if it needs financial aid, they refused to say what it would involve. An EU spokesman the next day did verbal aerobatics to avoid giving anything away.

Why the secrecy from an organisation that prides itself on openness and transparency? Probably to avoid giving bond traders another reason to speculate on Greece’s debt. Possibly to avoid angering German voters who oppose any bailout for Greeks.

Many questions remain about the standby plan. At what rate would Greece be able to borrow money? How much aid would be made available? Who or where would the money come from?

When asked about the European monetary fund, Strauss-Kahn went on to say the IMF would work with any kind of regional institution but that it should not be a distraction from fiscal measures being taken to get struggling countries out of trouble.

EU leaders would agree with that view. When it comes down to it, they hope never to have to use either the EMF or the standby plan for Greece.  Doing so could be another test of unity among EU member states and a difficult act of political will in some cases. They say they believe Greece can get by on its own, and will be keeping their fingers crossed that it can.

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