IMF chief says eurozone loan could force concessions
Wednesday, May 19, 2010
European nations might need to surrender some control over public spending and other policies to resolve a crisis in the 16-nation currency union that uses the euro, the managing director of the International Monetary Fund said Tuesday.
"The idea that you can build a single currency and just let everybody do what they want is wrong," said Dominique Strauss-Kahn, who called for closer coordination among the eurozone's governments at a time when the stresses in the common currency are at a peak.
Greece on Tuesday tapped the first roughly $18 billion of an emergency loan program provided by its European neighbors after global bond markets abandoned the country and pushed it near default. The country's economic policies have made it perhaps the least efficient among the governments that use the euro. Strauss-Kahn said economic growth on the continent might remain below par until the eurozone moves beyond a mere monetary union.
"You need to have some instrument to make the policies in line" among the 16 nations, said the IMF director, a former finance minister and one-time presidential candidate in France.
Problems in the eurozone pose one of the chief risks to the global economic recovery, at the least diminishing future growth in Europe, and at the extreme raising the possibility of a collapse in a currency envisioned at its creation as a competitor to the dollar as the world's preferred reserve.
Repeated attempts to defend the currency -- first by the bailout of Greece, then by creation of a $1 trillion fund to help other troubled countries -- have failed to prevent a continued slide in the euro's value against the dollar or to ease investor fears that Europe is headed for an epoch of slow growth.
European finance ministers are meeting in Brussels this week to debate financial reform as well as the structure and operation of the broader emergency fund, approved recently to defend other highly indebted nations such as Spain and Portugal from the type of market pressures that came to bear on Greece.
Consensus has proved difficult. The emergency program for Greece took months to negotiate as the crisis intensified. While IMF and European funds now have begun stabilizing Greece's finances, there is disagreement over how the broader euro-area program will be structured.
French and other officials want funding commitments signed in advance as a show of faith in the euro and as a way to make the program as creditworthy as possible. German officials have said they think the fund should be assembled as countries prove they need help, to keep closer control over how it is used.
Strauss-Kahn said the episode has revealed a flaw in the design of the 16-nation union that created the euro a decade ago. Although monetary policy is managed by a single institution, the European Central Bank, the countries set their own tax rates, budgets and economic rules.
The situation has tied the fate of powerhouse, surplus-generating economies such as Germany to that of highly indebted and comparatively inefficient countries such as Greece -- a potentially unsustainable mix that began to crack this year as Greece headed toward a default on its loans and Germany was asked to be the main backer of a bailout.
Common policies, even if it means each country relinquishing some authority to centralized European institutions, have been suggested as a way to boost growth and smooth out some of the wide differences in productivity among eurozone countries.
"You cannot have a single currency with a single decision maker in terms of monetary policy and sixteen decision makers" for spending and other issues, Strauss-Kahn said.