Regional Monetary Funds for The Global Economy So Far we have:
IMF Monetary Fund
Asian Monetary Fund
Arab Monetary Fund
and now it's
Time to Create a European Monetary Fund
Plans for an EU counterpart to the International Monetary Fund are taking shape as leaders discuss how to improve economic coordination and protect the euro:
Create a European Monetary Fund
Now is the time to set up a European Monetary Fund EMF to provide a framework for liquidity or insolvency crisis in the euro area. The existing €860 billion facilities for Greece and the euro stabilisation mechanism should be merged into the EMF.
Experience has by now shown that without a clear framework, decisions about how to organise financial support typically have to be taken hurriedly, under extreme time pressure, and often during a weekend when the turmoil in financial markets has become unbearable, making a full bailout the only option. The existing European Financial Stability Faciity is to be used only in an emergency and it represents funding without a fund, i.e. it lacks a clear permanent framework. The EMF would have key advantages:
First, the funding of the EMF should give clear incentives for countries to keep their fiscal house in order at all times.
Secondly, and perhaps even more important, the EMF could provide for an orderly sovereign bankruptcy procedure that minimises the disruption resulting from a default.
Recent events have vividly demonstrated that in the absence of a mechanism to manage an orderly sovereign default, adjustment programmes lack credibility and the balance sheet of the ECB is put at risk. Indeed, without a fiscal agent like the EMF in times of crises, the ECB becomes the fiscal agent of euro area governments by default. This role, if maintained, will destroy the institution in the long run.
Both the incentives for fiscal discipline and the establishment of bankruptcy procedures for euro sovereigns would decisively lower the moral hazard problem that pervades the present situation in which both the markets and the government of the country under pressure assume that, in the end, they can count on a bailout because the EU could not contemplate the bankruptcy of one of its members.
We should by now have learned that policy should not only be geared towards preventing failure, but preparing for it. In addition, the EMF could contribute decisively to the transparency of public finances because its intervention mechanism in the case of failure would penalise all derivatives and other transactions that had not been previously registered with a special registry of public debt, which the EMF would maintain.
The issue of how to deal with a sovereign default in Europe should not longer be avoided under the premise that what is not desirable will not happen.
http://www.global-economic-symposium...-monetary-fund