IDEAS home Printed from https://ideas.repec.org/p/eps/cepswp/13267.html
   My bibliography  Save this paper

A European Monetary Fund: Why and how?

Author

Listed:
  • Gros, Daniel
  • Mayer, Thomas

Abstract

As early as 2010, at the outset of the sovereign debt crisis, Daniel Gros and Thomas Mayer argued that Europe needed a European Monetary Fund (EMF). In the meantime, the European Stability Mechanism (ESM) has been created, which performs the function of an EMF. It was critical in containing the cost of the crisis and four of its five country programmes have been a success. But the case of Greece shows that one needs to be prepared for failure as well. They propose in this paper to keep the ESM essentially as it is, but would empower it to set conditions on countries receiving its financial support. Such support would have a limit, however, to prevent situations in which the ESM would ‘own’ a country. The authors conceive of the ESM/EMF literally as a financial stability mechanism, whose main function is to ensure that a bailout is no longer “alternativlos”, as Chancellor Angela Merkel used to say. In 2010, the rescue of Greece was presented as TINA (There Is No Alternative) because the stability of the financial system of the entire euro area appeared to be in danger. With financial stability guaranteed by the ESM/EMF in combination with the Banking Union, default becomes an alternative that should be considered dispassionately. Whether the debt of a country is sustainable is rarely known with certainty beforehand. Accordingly, they argue that it is proper that the Union, in the ‘spirit of solidarity’, initially gives a country the benefit of the doubt and provides financial support for an adjustment programme, but caution that the exposure should be limited. If the programme goes awry, the ESM/EMF could be of great help, as it could provide bridge financing to soften the cost of default.

Suggested Citation

  • Gros, Daniel & Mayer, Thomas, 2017. "A European Monetary Fund: Why and how?," CEPS Papers 13267, Centre for European Policy Studies.
  • Handle: RePEc:eps:cepswp:13267
    as

    Download full text from publisher

    File URL: https://www.ceps.eu/system/files/WD2017_11_DGandTM_EuropeanMonetaryFund.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Markus K. Brunnermeier & Harold James & Jean-Pierre Landau, 2016. "The Euro and the Battle of Ideas," Economics Books, Princeton University Press, edition 1, number 10828.
    2. Emmanuel Farhi & Jean Tirole, 2018. "Deadly Embrace: Sovereign and Financial Balance Sheets Doom Loops," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 85(3), pages 1781-1823.
    3. Jean Tirole, 2015. "Country Solidarity in Sovereign Crises," American Economic Review, American Economic Association, vol. 105(8), pages 2333-2363, August.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Jochen Andritzky & Désirée I. Christofzik & Lars P. Feld & Uwe Scheuering, 2019. "A mechanism to regulate sovereign debt restructuring in the euro area," International Finance, Wiley Blackwell, vol. 22(1), pages 20-34, May.
    2. Jost, Thomas & Seitz, Franz, 2021. "Designing a European Monetary Fund: What role for the IMF?," IMFS Working Paper Series 151, Goethe University Frankfurt, Institute for Monetary and Financial Stability (IMFS).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Markus K. Brunnermeier & Sam Langfield & Marco Pagano & Ricardo Reis & Stijn Van Nieuwerburgh & Dimitri Vayanos, 2017. "ESBies: safety in the tranches," Economic Policy, CEPR, CESifo, Sciences Po;CES;MSH, vol. 32(90), pages 175-219.
    2. Helge Berger & Giovanni Dell’Ariccia & Maurice Obstfeld, 2019. "Revisiting the Economic Case for Fiscal Union in the Euro Area," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 67(3), pages 657-683, September.
    3. Christian Grisse & Gisle J. Natvik, 2022. "Sovereign debt crises and cross-country assistance [A pyrrhic victory? Bank bailouts and sovereign credit risk]," Oxford Economic Papers, Oxford University Press, vol. 74(1), pages 178-193.
    4. Marina Azzimonti & Vincenzo Quadrini, 2024. "International Spillovers and Bailouts," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 91(1), pages 77-128.
    5. Luigi Marattin & Simone Meraglia & Raoul Minetti, 2022. "Sovereign bail‐outs and fiscal rules in a banking union," Scandinavian Journal of Economics, Wiley Blackwell, vol. 124(4), pages 1024-1055, October.
    6. Avellán, Leopoldo & Galindo, Arturo J. & Gómez, Tomás & Lotti, Giulia, 2024. "The cyclicality of official bilateral lending: Which cycle do flows follow?," Emerging Markets Review, Elsevier, vol. 59(C).
    7. Maideu-Morera, Gerard, 2024. "Optimal Fiscal Rules and Macroprudential Policies with Sovereign Default Risk," TSE Working Papers 24-1534, Toulouse School of Economics (TSE).
    8. Atanas Pekanov, 2018. "The New View on Fiscal Policy and its Implications for the European Monetary Union," WIFO Working Papers 562, WIFO.
    9. Kobielarz, M.L., 2023. "Bailout dynamics in a monetary union," Journal of International Economics, Elsevier, vol. 142(C).
    10. Carlos Madeira, 2022. "The double impact of deep social unrest and a pandemic: Evidence from Chile," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 55(S1), pages 135-171, February.
    11. Paul Pelzl & María Teresa Valderrama, 2019. "Capital regulations and the management of credit commitments during crisis times," DNB Working Papers 661, Netherlands Central Bank, Research Department.
    12. Vedolin, Andrea & Leombroni, Matteo & , & Whelan, Paul, 2018. "Central Bank Communication and the Yield Curve," CEPR Discussion Papers 12970, C.E.P.R. Discussion Papers.
    13. Agarwala, Matthew & Burke, Matt & Klusak, Patrycja & Mohaddes, Kamiar & Volz, Ulrich & Zenghelis, Dimitri, 2021. "Climate Change And Fiscal Sustainability: Risks And Opportunities," National Institute Economic Review, National Institute of Economic and Social Research, vol. 258, pages 28-46, November.
    14. Ramon Marimon & Eva Carceles-Poveda & Arpad Abraham, 2012. "On the optimal design of a Financial Stability Fund," 2012 Meeting Papers 945, Society for Economic Dynamics.
    15. Giancarlo Corsetti & Aitor Erce & Timothy Uy, 2017. "Official Sector Lending Strategies During the Euro Area Crisis," Discussion Papers 1720, Centre for Macroeconomics (CFM).
    16. Sebastian Blesse & Pierre C Boyer & Friedrich Heinemann & Eckhard Janeba & Anasuya Raj, 2019. "European Monetary Union reform preferences of French and German parliamentarians," European Union Politics, , vol. 20(3), pages 406-424, September.
    17. Pierre L. Siklos, 2020. "Looking into the Rear-View Mirror: Lessons from Japan for the Eurozone and the U.S?," IMES Discussion Paper Series 20-E-02, Institute for Monetary and Economic Studies, Bank of Japan.
    18. Gori, Filippo, 2018. "Dissecting the ‘doom loop’: the bank-sovereign credit risk nexus during the US debt ceiling crisis," MPRA Paper 87994, University Library of Munich, Germany.
    19. Andreeva, Desislava & Vlassopoulos, Thomas, 2016. "Home bias in bank sovereign bond purchases and the bank-sovereign nexus," Working Paper Series 1977, European Central Bank.
    20. Hefeker, Carsten, 2022. "Policy coordination under model disagreement and asymmetric shocks," Economic Modelling, Elsevier, vol. 114(C).

    More about this item

    Keywords

    European Monetary Fund; European Stability Mechanism; EMU reform; debt restructuring in EMU; EMU exit;
    All these keywords.

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eps:cepswp:13267. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Margarita Minkova (email available below). General contact details of provider: https://edirc.repec.org/data/cepssbe.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.