The creation of the European Monetary Fund

The problems in Greece are forcing the creation of the European Union’s own instrument to tackle financial crises in the euro zone.

Proposals have surfaced from the European Commission which builds on suggestions from France and Germany to create a European Monetary Fund, in order to reinforce economic coordination and provide help to countries in difficulty.

The Monetary and Economic spokesman said that the European Commission was ready to create such an organisation, though added that it would require support from all euro zone member states.

The proposals have thus been given Brussels’ backing, having been launched by the German finance minister in consultation with France.

The aim is to secure the stability of the euro zone, which requires an institution like the International Monetary Fund, and other similarly interventionist powers, though the Commissioner stated that any “EMF” would still act under strict conditions and would be no less demanding than those of the IMF.

The project has also received support from German Chancellor Angela Merkel as a way to combat the crisis in Greece despite the fact she deliberately avoided mentioning it, and warned that the project would require an amendment to the Treaty of Lisbon. She added that it would be necessary to decide first who and how the fund will be paid for, as well as its relationship with the European Commission and to discuss the sanctions imposed on countries that break the conditions of the Growth and Stability Pact.

However the EMF has already come under strict criticism from the Chief Economist of the European Central Bank, Jurgen Stark, who claimed that “such a fund would undermine the success of the Euro and the European Union”. The ECB president, Jean-Claude Trichet, was equally hostile to the idea intervention of the IMF in Greece.

It is worth noting that a soft of EMF was originally proposed by the President of the Party of European Socialists. The project was already a part of their initial crisis resolution package, but the Commission’s attitude has been too centred on the monetary aspect instead of looking for ways to promote growth and employment while combating financial speculators.