Comments 2

Eurozone Chutzpah and the IMF

Apr 11, 2012 Simon Tilford

European officials take it for granted that the IMF should support the eurozone, as if the rest of the world had some kind of duty to do so. It does not, and it should not allow the eurozone to extort that support.

LONDON – Eurozone policymakers and politicians are in no doubt: they have done their part to support the currency union’s struggling members by increasing the size of its rescue fund, the European Stability Mechanism (ESM). Now it is time for the rest of the world – that is, the International Monetary Fund – to step up and put additional funds on the table, and European finance ministers are making that case at the IMF/World Bank meetings in Washington

European officials, in other words, take for granted that the IMF should support the eurozone, as if the rest of the world had some kind of duty to do so. In reality, even if eurozone governments could agree on a much larger increase in the ESM’s size, there are compelling reasons why the IMF should refrain from offering any further support. & & &

Europe’s leaders cannot decide if the eurozone is a federation akin to the United States or a group of independent states. They frequently compare the eurozone favorably to other developed economies.

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Jonathan Lam Apr 22, 2012

Eurozone Chutzph and the IMF

“Eurozone members as a whole, they argue, have a lower budget deficit than the US and the United Kingdom, and a similar level of public debt. Unlike the US and the UK, the eurozone in aggregate is running a current-account surplus (it is, as policymakers like to say, living “within its means”). And they express considerable pride in the euro’s growing role as an international reserve currency, as well as resolve to do whatever it takes to defend the currency union’s integrity.”
I would agree on the scheme of integrity for the Euro currency union, or it lives ‘within its means’. Then, what went wrong with growth or the future of it? If it is running on 1-2% growth and 20% unemployment in general; perhaps, Mr. Simon Tilford gave a good reason the IMF is not involved in helping India even though its Stricken states of Bihar and Uttar Pradesh is making less than a tenth of the eurozone levels. It is a good point that EU should not drag IMF into assistance of its rescue fund, the European Stability Mechanism (ESM) establishing its the bi-system of rescue fund; I am glad that the other input $430 billion and Japan’s $600 billion pledge. That made a 2 trillion gift to EU. However I would stress the issues of liquidity, solvency, sustainability and competitiveness to the recues of the Southern States like PIIGS, Does it sound much like too big to fall? Or, Do the Southern States really live within its means?

For much the rescue begins, these rescue funds would help eliminate the debts in the second round of restructuring of the debts. Then, the funds from the Twist would turn into credit and shift into the system like the hot cash; the coming inflation and the exchange rate upgrade would escalate based on the structured inflation from the emerging nations with their upgraded labor cost and transportation cost may strangle the growth of the Southern States more since the budget cut or austerity programs. Eventually, the relief of the write-off some believe the economy would reverse would bring on the stagflation and volatile currency exchange rate when the debt/credit sovereignty accountable is turned over to the credit over to the commercial bank. The days of the global stagflation is not far, and the timing for the 2014 in changing the interest rate to the major central banks or commercial banks may not be equipped sufficiently to void the stagflation after it has stalled off years for the ECB and FED.

“That would be an unjustified use of IMF resources, and would further confirm the suspicion among the world's emerging economies that the IMF is in thrall to Western interests………..If eurozone governments are unwilling to build the federal institutions needed to stabilize the eurozone, they should either assemble a big enough rescue fund themselves, or accept that the single currency is unworkable in its current form.”
I still think IMF should not taking the post of insurer like ECB in monitoring the sovereignty debt if its major task is aiding the monetary settlements of the exchange and retribution of the financial, and stabilizing the global monetary finance. By time when stagflation hits or the federation of EU fails, IMF will become the one of the balls being juggled under Ms Largard. It is questionable if IMF is really in thrall to western interest when the changes of the currency exchange must under a new reconstruction. After which, economical growth G20 proposed may not be optimistic as it shows, since the core of inflation had been modified by the merging nation to the restructuring inflation through the hyper labor cost and transportation pricing. The hell break loose as the Piigs run off the fence, when they realize in open competitions, there is less tolerance in sustainability, liquidity, affordability and competitiveness; and resilience comes from social and political if the balance of the financial and development is off.
The alternative in use another entity like the World Bank or Development Bank to keep the task and responsibility of the insurer under the guidance of the United Nations rather than 54% control of the world Bank by the ECB/FED. Does anyone smell monopoly around here or there? Finally, I stress on the questionable role of the rescue fund in IMF is in thrall of Western interest.
“The exuberant fertility of the universal will. “ by Friedrich Nietzsche . German philosopher. The Birth of Tragedy (1872).

May the Buddha bless you?
Zsolt Hermann Apr 11, 2012

I fully agree with the writer's opinion about the European attitude.
As the writer says they wanted to get the best of both worlds.
They set up a superficial fiscal, economical collaboration in order to compete on the financial/economical markets with the US and the Asian countries, but they did not want to create a sound basis for it by building a fully integral structure with full socio-economic integration on a supra-national platform, which is understandable since that is a much more complicated, and sensitive political question.
Now as the luck of the adventure has run out and the global economy started collapsing, the make up is coming off and it does not mater how stubbornly they try the different virtual, cosmetic financial adjustments, the structure is falling since it has no foundation.
This is a very important lesson for the whole global world, in our new interconnected, interdependent global network we will have no possibility to solve any of our problems unless we swallow the bitter pill, take on the political, social challenge, and move away from our populist fragmented, polarized, nationalistic worldview and start building a mutually responsible, truly global human structure that can adapt us to the conditions we exist in.