European Monetary Fund Research Articles

Proposals for Institutional Changes in the Management of the Euro Area: Euro Area Treasury, European Minister of Economy and Finance, European Monetary Fund

European Union member states which have been outside the euro area are obliged to join it as soon as they are able to fulfil the necessary convergence criteria. As a result of the financial crisis of 2008 and the consequences following it, euro area member states have adopted additional rules regulating its functioning which make the accession to the euro area even more difficult for those concerned. In addition to this some member states and EU institutions have proposed other measures which have as their aim to establish new institutions and organs involved with the management of the euro area.
 The present paper aims at describing three of those institutions (the Euro Area Treasury, European Minister for Economy and Finance, European Monetary Fund) and to evaluate the potential impact of their entry into force on those member states who (as Poland and Czechia) have been outside the euro area. In order to achieve this aim the author analyses proposed changes in more details and provides an assessment.

The Reform of the European Stability Mechanism: Process, Substance, and the Pandemic

The European Stability Mechanism (ESM) has been instrumental in safeguarding the financial stability of the Euro area and of its Member States. This article looks at the tumultuous process of reforming the ESM. It analyses the main changes that would be brought about by the draft revised ESM Treaty, whose text was agreed upon in June 2019 and finalized in December 2020. These concern the ESM’s purposes and operations; the procedure for granting stability support to a Euro area Member State; precautionary financial assistance instruments; single-limb collective action clauses; and the common backstop to the Single Resolution Fund. The focus then shifts to the changes agreed upon in response to the COVID-19 crisis. A new credit line has been introduced, the Pandemic Crisis Support, which builds on an existing instrument. It is argued that the reforms posited in the draft revised ESM Treaty would plug important gaps in the framework of the Economic and Monetary Union. Nevertheless, some of the ESM’s underlying vulnerabilities would remain, notably as regards its governance, the status of non-Euro area Member States, and the framework for its transparency and accountability. A more comprehensive reform could have taken place, which would have improved upon the overall structure of the Euro area. European Stability Mechanism, ESM Treaty, ESM reform, Pandemic Crisis Support, European Monetary Fund, economic governance, accountability

Political aspects of security of the European Union Member States

Political security is very often considered through the prism of individual states. In the scholar literature in-depth analyses of this kind of security are rarely encountered in the context of international entities that these countries integrate. The purpose of this article is to draw attention to key aspects of political security in the European Union (EU) Member States. The EU as a supranational organisation, gathering Member States first, ensures the stability of the EU as a whole, and secondly, it ensures that Member States respect common values and principles. Additionally, the EU institutions focus on ensuring the proper functioning of the Eurozone (also called officially “euro area” in EU regulations). Actions that may have a negative impact on the level of the EU’s political security include the boycott of establishing new institutions conducive to the peaceful coexistence and development of states. These threats seem to have a significant impact on the situation in the EU in the face of the proposed (and not accepted by Member States not belonging to the Eurogroup) Eurozone reforms concerning, inter alia, appointment of the Minister of Economy and Finance and the creation of a new institution - the European Monetary Fund.

From the European Stability Mechanism to the European Monetary Fund: There and Back Again

AbstractIn December 2018, the Euro Summit endorsed the Term Sheet on the European Stability Mechanism (ESM) reform prepared by the Eurogroup. In this context, the Euro Summit did not acknowledge the proposal of the European Commission to transform the ESM into the European Monetary Fund (EMF), but simply gave the Eurogroup a mandate to draft the relevant amendments to the ESM Treaty and submit them to the European Council of June 2019. Nonetheless, the justifications for the incorporation of the ESM into the body of the European Treaties continue to be valid and may come back into play. In this respect, it is worth highlighting two flaws that have emerged in the proposed transformation of the ESM into the EMF. First, the ESM Treaty does not contain any rule about extinction and transfer of functions. Second, the Commission’s proposal did not clarify what status the EMF would have enjoyed in the EU legal framework.

Unia bankowa i Europejski Fundusz Walutowy alternatywą dla unii fiskalnej w strefie euro?

The public debt crisis in the Eurozone, which began in 2010, showed serious weaknesses of the structure on which it was based. It was only thanks to extraordinary intervention activities that the situation was stabilised and the risk of the disintegration of this zone was eliminated. Currently, an urgent task for the institutions and member states of the European Union is to develop and implement solutions that would avoid such risks in the future. The aim of the article is to analyse and evaluate the possibilities of deepening integration in the euro area towards fiscal federalism and to examine whether the banking union and the future European Monetary Fund could be alternative solutions to the fiscal union. The analysis leads to a negative answer to this question due to the significant differences between the two projects in terms of their objectives, scopes and potential consequences from the perspective of the participating countries’ sovereignty. This analysis also shows that the banking union is an expression of a pragmatic approach to potential threats to the Eurozone’s stability in a situation where the establishment of a fiscal union is unlikely in the foreseeable future.

A Possible European Monetary Fund and the Future of the Euro Area

A Possible European Monetary Fund and the Future of the Euro Area

State Contingent Debt as Insurance for Euro Area Sovereigns

Abstract The authors provide a novel angle to the ongoing discussions by the G20 on sovereign contingent debt and argue that contingent debt could provide market-based insurance to protect the euro area from future debt crises. Risk-sharing with the markets is a practical way forward in the context of the Franco-German debate on risk-sharing among EU member states vs system-wide risk reduction. The financial innovation of contingent debt is a feasible euro area reform that would not introduce risk-sharing between states or require institutional reforms or Treaty changes. However, coordination would be needed. The authors’ suggestion fills a gap in the proposals on the completion of the banking union and the possible establishment of a European Monetary Fund (EMF). These proposals offer institutions-based solutions to crises, with the banking union providing safety regulations that will make banking institutions more resilient, while the EMF will be a ‘fire brigade’ to be called on in emergencies. What has not been tapped are the markets, whose tolerant behaviour to sovereign demands encouraged the build up of debt, while their finicky response exacerbated the crisis.

An Evolutionary Path Towards a European Monetary Fund

Abstract There is no need for Europe to replicate the International Monetary Fund (IMF). The European Stability Mechanism (ESM) can provide the backstop for sovereigns, even without a financial contribution from the IMF. In this sense, the ESM already constitutes to a large extent a ‘European Monetary Fund’. Other IMF activities, such as surveillance and policy coordination should remain with the European Commission, the Eurogroup and other existing bodies. The financial resources of the ESM will be required as a backstop only intermittently, in times of great financial market instability. The need for this will evolve as a function of the nature of financial markets and their cross-border integration. It is not possible to forecast with any precision when the next financial crisis might break out and what form it will take. Any evolution of the ESM should thus aim at enhancing flexibility in its instruments while clarifying its overall mandate (financial stability), rather than changing the details of the rescue mechanism or its institutional structure. The financial stability function of the ESM should be extended to the central institutions of the Banking Union, with an ultimate backstop for the Single Resolution Fund (SRF). Moreover, the ESM should be viewed as the natural instrument for unifying the euro area’s representation in the IMF.

The Commission’s proposal to establish a European Monetary Fund - a critical analysis

On December 6, 2017, the European Commission published a set of proposals to reform the euro area. These proposals include, inter alia, the creation of a post of European Finance minister, a euro area budget-line and the establishment of a European Monetary Fund (EMF). The latter will be at the centre of this article. The Commission does not intend to set up the EMF anew from scratch. Rather, the new EMF is to be built on the wellestablished structure of the European Stability Mechanism (ESM). The new EMF will thus succeed to and replace the ESM, with the latter’s current financial and institutional structure essentially preserved. However, the new institution will also take on a number of additional functions, such as providing a financial backstop for the Single Resolution Fund (SRF), enhanced monitoring tasks and the responsibility to report regularly to the European Parliament. But will these changes make EMU more efficient, coherent and democratic? And has the EU the competence to establish such a mechanism at all? The objective of this article is to answer these complex questions. Fundstelle: Riss, Hofmeister , The Commission’s Proposal to Establish a European Monetary Fund: A Critical Analysis, ALJ 2018, 139–158 ( http://alj.uni-graz.at/index.php/alj/article/view/126 ).

Designing a Sovereign Debt Restructuring Mechanism for a European Monetary Fund

The establishment of a European Monetary Fund (EMF) enjoys increasing academic and political support, though its advocates do not necessarily agree on the purpose and functions of such an institution. This paper aims to examine the features of the EMF that are relevant to sovereign debt restructuring. We argue that a European sovereign debt restructuring mechanism would be a feasible and useful tool in a crisis. It would facilitate private sector involvement and convey all the advantages that pre-defined procedures offer compared to ad hoc solutions in dealing with a crisis.

Fiscal federalism and a separate budget for the euro area

Abstract The core objective of this paper is to determine the main political and economic conditions and challenges related to the possible evolution of the integration process in the euro area toward fiscal federalism and fiscal union as a way to increase the capacity of the area to cope with future economic and financial crises. The issue of a separate budget for this area is of particular interest in this article. The idea of such a budget has recently become the subject of lively public debate in the European Union and has been a factor in encouraging the European Commission to propose new solutions at the end of 2017 in the field of economic governance of the euro area, including the establishment of a European Monetary Fund. The analysis carried out in this article leads to the conclusion that under the current conditions, there is little chance of introducing such regulatory and institutional changes that would significantly increase the scale of financial transfers between the euro area member states.

EUROPEAN MONETARY UNION: ACHIEVEMENTS AND FUTURE CHALLENGES

The European governance has constantly evolved since the acceptance of the Maastricht Treaty in 1992. The evolution of the European institutions is especially marked by the economic impact of the 2008 crisis. Indeed, following the crisis new institutions with new functions emerged in order to allow for a better management of the crisis. Further reforms are likely to give way to the creation of new institutions in the future, such as the European monetary fund or the European Ministry of Economy and Finance. The present paper analyzes the interaction between the innovations in the functioning of the euro area and the economic business cycles. For this, the present paper first gives the evolution of the key economic indicators in the euro area compared to the USA. Then, the new institutions are analyzed with respect to their economic stabilization capacity. The supra-national character of these new institutions implies higher policy cooperation within the euro area. However, the order of priority assigned to the policy targets seems to be more decisive than the institutional innovation in stabilizing the business cycles.

A Critical View on the Recent Reform Proposals of the European Commission

The European Commission recently proposed a Roadmap for deepening EMU. Establishing a European Monetary Fund (EMF) and support mechanisms for structural reforms are reasonable suggestions. However, the integration of the EMF in the Union’s framework must not endanger the conditionality principle. Moreover, creating a sizeable stabilisation function within the EU budget poses technical problems and would set questionable priorities. Furthermore, a European Finance Minister is simply not needed with the proposed design.

State Contingent Debt as Insurance for Euro-Area Sovereigns

The euro-area sovereign debt crisis is receding. Europe is on a recovery path, growth is broad-based and unemployment is falling. One after the other, countries hit hardest by the crisis are exiting their adjustment programmes. However, debt remains high in most countries and future debt crises should not be ruled out. While the memories are fresh, it is a good time to think about insurance against future shocks. Such insurance schemes must involve risk sharing with the markets. They weaken the bank-sovereign doom loop from the sovereigns’ side, and not just from the banks’ side as pursued by the banking union, and make for a more resilient euro area. The promotion of the banking union and the establishment of a European Monetary Fund are institution-based solutions to crises. Banking union provides the safety regulations that will make banking institutions more resilient, while the EMF is a ‘fire brigade’ to be called on in emergencies. What has not been tapped are the markets, whose tolerant behaviour to sovereign demands encouraged the built up of debt, while their finicky response exacerbated the crisis. Taking ongoing G20 discussions on sovereign contingent debt as the point of departure, we argue that these instruments could provide market-based insurance to protect the euro area from future debt crises. Risk-sharing with the markets is a constructive way forward in the context of the Franco-German debate on risk-sharing among states versus system-wide risk reduction. The financial innovation of contingent debt is a practical euro-area reform that would not introduce risk-sharing between states or require institutional reforms or Treaty changes. However, coordination would be needed.

The Proposed Legal Framework for Establishing a European Monetary Fund (EMF): A Systematic Presentation and a Preliminary Assessment

The aim of this paper is a systematic presentation of the European Commission’s proposal for a Council Regulation “on the establishment of the European Monetary Fund” (EMF) of 6 December 2017, including the European Monetary Fund’s Statute, annexed thereto. It is beyond the paper’s scope to review and refer to the extensive literature on this subject-area (or any other relevant secondary sources)pre-dating the submission of the above proposal; thus, it is based exclusively on primary sources and the related Communication(s) of the European Commission. The paper is structured in seven (7) Sections. Section A deals with the (eight) provisions of the proposal for a Council Regulation which are very limited (in number) compared with the extensive provisions of the EMF Statute reviewed in Sections B-F, as follows: • Section B introduces the Statute’s general provisions (including the legal status of the EMF and membership therein), • Section C discusses the EMF’s objective and its two tasks, namely the stability support operation and the provision of financial support (‘common backstop’) to the Single Resolution Fund, • Section D looks into the EMF’s capital and lending capacity, • Section E touches upon the EMF’s organisation and decision-making processes, and • Section F approaches the EMF’s financial management and its financial provisions. Finally, Section G contains a preliminary assessment of the Commission’s proposal, as a premise for further reflection on which the author may return (hopefully soon) with a more detailed analysis in a revised version (including due references to secondary sources).

How Memoranda of Understanding Have Affected EU Democratic Institutions in Southern EU Countries

The recent recession having emerged in 2007 has been the worst economic downturn since the time of Great Depression of 1929 in USA and spread across the European continent. In many European countries this led to severe sovereign debt crisis beginning in 2010 and was followed by implementation of austerity measures with significant impact on public, social and employment sector. Those tough austerity measures resulted in structural reforms of welfare and labor market especially in Southern EU countries like Greece, Spain, Portugal, Ireland and Italy representing the most prominent examples. These policies were imposed to a large extend through the so called “Troika” which was an interaction between internal EU and external Organizations, like the European Union, the European Central Bank and International Monetary Fund respectively.Citizens realize that their national economic institutions are no longer responsible for the decision making on major social and economic policies, on economic and welfare policies, on privatization and sale of public assets. Consequently, citizens tend to question if this constrained democracy deserves further support. This is enhanced by the fact that National Parliaments no longer develop policies but rather align with policies dictated by the above stated Institutions and are forced to accept such deals without asking the opinion of citizens. Nevertheless the EU intends to promote civil society participation in decision making and program policies applied. This contradiction needs to be analyzed in order to determine if there is a democratic deficit in EU member states.

Fiscal councils as an element of the concept of fiscal governance in the European Union member states

Fiscal governance is defined as a combination of institutions, rules and norms that structure good governance in the area of fiscal policy. It can be named as the specific mechanism of coordination by using of tools such as: budgetary procedures (legislative fiscal rules), fiscal rules (numerical) and independent fiscal institutions/ fiscal councils. Fiscal governance focuses on how the fiscal policy is planned, approved, conducted and monitored, including the involvement of not only public bodies, but the business sector and civil society too. In this study, particular attention was paid to capturing the essence of the relationship between the qualitative elements of fiscal councils activity and its impact on stabilizing the public finances in the view of fiscal governance concept. During the last world crisis in the EU countries, an interest in establishing fiscal councils has increased. Before 2008 there were only seven institutions in the EU, while in 2014 there are already 19. The question is - are these institutions efficient in stabilizing public finances? Therefore, the main objective of the article is the assessment of the role of the fiscal councils in the coordination of the fiscal policy in the EU Member States. The conducted analysis verifies this role on the basis of theoretical deliberation of the current state of the art. The empirical research verifies fiscal councils’ dependence on fiscal balance of EU countries. Research was conducted on the basis of the European Commission, Eurostat and International Monetary Fund data sets.

The European Monetary Fund: internal planning and external relations – introduction

The European Monetary Fund was the subject of the Second International Seminar on European Economic and Monetary Union, held in Geneva in December of 1979. In this introduction to the proceedings, the author reviews the points of discussion and offers some introductory remarks.

The EMF: concluding remarks

The European Monetary Fund was the subject of the Second International Seminar on European Economic and Monetary Union, held in Geneva in December of 1979. In these concluding remarks, the author summarises some of the main points of discussion and offers some further considerations.

The EMF: concluding remarks

The European Monetary Fund was the subject of the Second International Seminar on European Economic and Monetary Union, held in Geneva in December of 1979. In these concluding remarks, the author summarises some of the main points of discussion and offers some further considerations.