Proposal for European Monetary Fund Meets Resistance

From http://www.roguegovernment.com/Proposal_for_European_Monetary_Fund_Meets_Resistance/20040/0/8/8/Y/M.html

Proposal for European Monetary Fund Meets Resistance
Published on 03-14-2010 Email To Friend Print Version


Source: NY Times

PARIS — The German proposal to establish a European monetary fund ran into skepticism at home and abroad Tuesday, highlighting the political and legal hurdles that such an undertaking would face.

In her first public reaction, the French economy minister, Christine Lagarde, described the idea as interesting, but not urgent.

“It does not appear to me to be the absolute priority in the short term,” Ms. Lagarde said on the sidelines of a banking event here. “If it is simply meant to strengthen the European mechanisms already in place to govern finances, then it is not helpful, in my opinion, to stir up the polemic.”

That sentiment was echoed by Axel A. Weber, the chief of the Bundesbank, or German central bank. “It’s not helpful to talk about ways to institutionalize help when the question is how to implement the budget reforms,” he said, according to a Reuters report from Frankfurt.

The German chancellor, Angela Merkel, has voiced support for the proposal, which was initially floated in the German press by her finance minister, Wolfgang Schäuble. But speaking in Luxembourg on Tuesday, she stressed the caveats.

Any European monetary fund would require changes to the European Union’s governing treaty, she said, and should be seen as a “last resort,” Reuters reported.

In a newspaper interview published Sunday, Mr. Schäuble suggested that a fund could be used as a buffer to prevent debt crises, like the one in Greece. Those plans were endorsed Monday by the European Commission in Brussels, which said it would draft a formal proposal for such a fund.

But while Germany has dangled the idea in the press, it has not offered details, leaving its partners scratching their heads, for example, over what kind of powers the fund might have and whether it would involve the private sector.

Some countries appear to think that the idea would involve setting up a new institution, while others suggest it could be created if all 16 countries using the euro signed a commitment — not a treaty — to act together to support a member with balance-of-payments problems. “Our first reaction is reluctance,” a spokesman for the Dutch Finance Ministry said. “It’s hard to react to something that we’ve not seen on paper.”

He added: “We don’t see a direct need for a new institution.” The spokesman asked not to be identified by name because of government policy.

Any legislative change in the European Union is likely to be contentious and time-consuming. The Lisbon Treaty, which went into effect in December, took years to ratify. The first version was rejected by voters in France and the Netherlands; voters in Ireland rejected a second version; and then the final treaty ran into last-minute problems in the Czech Republic.

E.U. officials are expected to examine possible legal hurdles — particularly whether national budget laws would need to be altered — before a meeting of euro-zone finance ministers Monday.

Cristina Pérez Cantó, a spokeswoman for the Spanish economy minister, Elena Salgado, declined to comment. Madrid currently holds the rotating presidency of the E.U. Council of Ministers.

More opposition surfaced at the European Central Bank. Writing in the German business daily Handelsblatt on Tuesday, Jürgen Stark, a German member of the bank’s executive board, said that a European financing mechanism would be “incompatible with the fundamentals of monetary union.”

“Countries that have not observed the rules of monetary union, that have profited from the euro without taking on the duties that go with it, must not be rewarded for this misbehavior,” he wrote.

Joint financing “could become very expensive, would create false incentives and burden countries with solid finances,” he added. Instead, rules for monetary union should be tightened and sanctions should be more automatic to rule out political influence. For example, there could be an independent “deficit commission” to issue quarterly opinions and recommendations on country finances.

Prime Minister George A. Papandreou of Greece reiterated Monday in Washington that he would not rule out turning to the International Monetary Fund for help. But he also said the concept of a European fund had merit. “The more there is a European solution to a theoretical, but possible, problem in the markets, the less we will have to talk about an I.M.F. solution,” he said.

Mr. Papandreou also called for the United States and the Union to crack down on speculative trading, arguing that exotic bets had driven up Greece’s borrowing costs and threatened its efforts to ease its debt crisis. He was to meet President Barack Obama on Tuesday.

José Manuel Barroso, president of the European Commission, said Tuesday that his office would “examine closely the relevance of banning purely speculative naked sales on credit default swaps of sovereign debt.” So-called naked sales involve selling to a buyer who does not hold the underlying sovereign bond.

“If needed, the commission will use the competition powers it has in that matter,” Mr. Barroso said, speaking at the European Parliament in Strasbourg.

But Germany’s financial services regulator, known as Bafin, said in a statement that it had not been able to find evidence that speculators were using swaps to mount attacks on Greek government debt. The regulator said its examination of data from the U.S. Depository Trust & Clearing Corp. showed that increases in prices for swaps were the result of demand from investors seeking to hedge against risks from Greek debt. The data do “not point to massive speculative activity,” Bafin said.

Jack Ewing contributed reporting from Frankfurt and Sewell Chan from Washington.