Imf for new euro crisis fund

imf for new euro crisis fund

The head of the international monetary fund (IMF), christine lagarde, is advocating a multi-billion euro "bad weather fund" to stabilize the euro zone.

Each euro country should pay 0.35 percent of its gross domestic product (gdp) into the fund each year, she said at a speech by the german institute for economic research (DIW) in berlin – for germany, that was around eleven billion euros a year. For relatively lower costs, this could significantly reduce the financial risks in the event of sudden upheavals, lagarde emphasized.

A spokesman for german finance minister olaf scholz (SPD) said that the details would have to be looked at before a position could be taken on the matter. In the past, the EU has been poorly prepared for financial and debt crises such as in greece – which may end up costing taxpayers dearly.

The euro countries then agreed in 2012 on the permanent bailout fund ESM as successor to the temporary protection fund EFSF. The ESM can grant maximum financial assistance in the amount of about 500 billion euros, its share capital is more than 700 billion euros. Possible measures include aid loans, precautionary programs and funds to strengthen banks. Aid for euro countries also tied to reform conditions. There is currently a debate about expanding the ESM into a european monetary fund (EMF).

Lagarde stressed that growth in the euro zone is expected to remain stable at 2.2 percent in the fifth year. "But there are other strong headwinds. Think of the rise of populism and the ertoning sirens of protectionism."

The IMF’s proposal for a new crisis fund and better fiscal and financial cooperation calls for the fund to be financed with annual contributions-those 0.35 percent of gdp-"to build reserves in good times and provide support transfers to specific countries in bad times.". If certain crisis scenarios occur, the crisis funds could remain in place.

The idea itself is not new, but the specific volume is. Lagarde recalled crises such as the collapse of several banks in 2008 – and the subsequent creation of stabilization funds such as the current ESM, which is intended to protect euro countries from bankruptcy by providing loans and guarantees in the event of difficulties. Lagarde stressed that precaution is always more important. She therefore also supports the idea of an improved banking union in europe with clear rules to better prevent collapses and mismanagement in the future.

Last year, the head of the euro rescue fund ESM, klaus regling, had already brought a new crisis fund into play. As a rough order of magnitude, he mentioned an amount of 1 to 2 percent of the gross domestic product of the euro zone – up to 200 billion euros. He told the "handelsblatt" that the USA could also be used as a model for financing. U.S. States have filled rainy-day funds with contributions from their state budgets.

There are currently intensive discussions about a reform of the euro zone, i.E. The 19 of 28 EU countries with the euro as their currency. France’s president emmanuel macron in particular is insisting on this, and he and chancellor angela merkel (CDU) plan to present initial plans at the next eu summit in june. Stronger bank cooperation is particularly controversial.

The deputy managing director of the german chambers of industry and commerce (DIHK), achim dercks, emphasized that "it is better to help early on in crises than to shoulder the higher costs of crisis management later on". However, the volume of such a fund should be much smaller than lagarde suggested. . "The use of the funds also had to be clearly limited to investment measures. This would prevent the need to cut back on government investment in a country affected by the crisis."

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