IMF should stay out of the eurozone crisis

by Wolfgang Münchau

Financial Times
January 22, 2012

The International Monetary Fund has earmarked 91 per cent of its definitive commitments to programmes in Europe. There is now a proposal on the table that suggests this is not enough and should be significantly increased.

Would an increase in IMF funds to bail out the eurozone be justified? In particular, should non-eurozone countries participate in raising this new capital?

I think not.

The IMF is right, of course, to conclude that the eurozone crisis is the main risk facing the global economy right now. The world has a strong interest in the resolution of the crisis. But greater IMF involvement in specific EU programmes is not necessary, and quite possibly counterproductive.

It is not necessary because the eurozone has the financial capacity to help itself. The combined region runs a small current account surplus with the rest of the world. As a result of this, it does not depend on outside finance. It has its own central bank, which can, in theory at least, act as a lender of last resort. The eurozone operates, of course, under political and legal constraints, such as the deficit rules of the Maastricht treaty, the “no bail-out rule”, or the rules preventing the European Central Bank from funding governments. However, an outsider would be right to argue that these rules are all self-imposed, and hence reversible. The eurozone should change its rules before crawling to others, cap in hand.

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