Europe’s plans – led by Germany – to create their own monetary fund to replace the International Monetary Fund in times of crisis now appear to have been put on hold.
Relations between the EU and the IMF first soured during the Greek financial crisis when the latter seemed reluctant to provide credit to Athens in its straitened circumstances. The EU had begun drafting plans to expand the European Stability Mechanism, set up following the financial crisis, to become a last-resort lender to seriously struggling governments.
But now, after months of consultations, relations between the two have improved. EU diplomats now say they want the IMF to remain involved in the Eurozone economy. The IMF, on its part, has even mooted the possibility of extending a further $1.6 billion to Greece.
This softening of relations first became clear when IMF managing director Christine Lagarde visited German Chancellor Angela Merkel for talks in January this year, followed by the comment from German Finance Minister Peter Altmaier that ‘The ESM will always be the little brother of the IMF’.
It has also proven more difficult than expected to expand the powers of the EMS. No agreement could be reach on translating the policy change into European law, or whether the new fund would control national budgets.
This new, conciliatory attitude seems pragmatic given that Europe makes up one-quarter of the contributions to the IMF – why, then, would it wilfully exclude it from any involvement in European debt management?