ECB Likes the Idea of a European Monetary Fund, But Not the Name
(Bloomberg) -- The European Central Bank signaled that it approves of a European Union plan to upgrade the powers of the region’s crisis fund, as long as it doesn’t get a new name.
The bloc’s leaders will discuss in June strengthening the European Stability Mechanism -- established in 2012 by member countries -- and transforming it into a European Monetary Fund, with greater powers and say over euro-area bailouts. In an opinion published on Thursday, the ECB warned that the use of the term “monetary” could be “misleading” and “inaccurate,” as it risks generating confusion over who is in charge of managing the euro.
Those views were later expanded upon by Governing Council member Jens Weidmann, who said during a speech in Berlin that “the tasks and objectives of the ESM are not monetary or to do with the currency, but rather fiscal and economic.”
The ECB said it’s in favor of expanding the tasks of the ESM to include backstopping the region’s bank-failure fund. The central bank views the EU proposal as an “important first step,” even if further reforms will be “essential,” particularly to expand the ESM’s financing tools.
The idea behind revamping the ESM aims at anchoring its role as the region’s safety net, alluding to the role the International Monetary Fund plays at the global level. Yet the ECB points out that “the IMF was established under different circumstances and with different objectives and tasks.”
Weidmann added that a potential legal redesign of the fund must not damage member states’ responsibility for its actions.
“There is a proposal to transpose the intergovernmentally agreed ESM Treaty into European Community law. However, if this step were to undermine existing member states’ right to have their say, it should be rejected,” he said. “The link between actions and liability would fall apart -- - because it is the member states that are responsible for the risks taken by the ESM.”
©2018 Bloomberg L.P.