Looks like the "European IMF" is coming soon to a country near you to bail out troubled Eurozone governments. I guess the idea is that this fund would require payments in good times to bail out laggards in times of crises.
I am still trying to find someone who has in-depth knowledge of the IMF to see why the Washington DC based organization cannot fulfill that role. Also, I cannot help but wonder how the Eurozone plans to capitalize such an institution in order to allow it to have an impact, given the depth of global financial markets. Given that the IMF had to stretch to make a $55 billion reserve loan (its largest ever) to Korea in 1997, it is unclear how an E-MF would generate sufficient funds to counter more than $2 trillion in daily capital market flows – or the leveraged speculative attacks of just a few hedge funds…
Update 3/10/2010: The Chief Economist of the ECB, Juergen Stark, is strongly rejecting the idea of a EMF (see here for those who speak German). Could he seriously thinking that "countries that have committed financial discretions, will not change their behavior," even if an EMF was in place. I wonder if the IMF agrees that it has been lending money in the last 50 years to countries that never change their ways. But, then Mr Stark adds, "The EMF would be the start of an European Fiscal Rebalancing system, which would be very expensive." This is in contrast to a voluminous literature which states exactly that a currency union without fiscal transfers mechanisms (as they exist in the US) is exactly at the heart of the problem, and that the costs may be much higher if such a mechanism is absent.
