Ever since the financial crisis mutated into a ‘euro’ crisis in 2009-10, the feasibility and desirability of creating a European Monetary Fund (EMF) has been the object of serious debate in both academic and policy circles.
In the meantime, the European Stability Mechanism (ESM) has been created to essentially perform the functions of an EMF. It has been critical in containing the cost of the crisis, and four of its five country programs have been a success.
However, the case of Greece shows that one needs to be prepared for failure. This insight proposes to keep the ESM’s remit as it is today, but would further empower it to impose conditions on countries receiving its financial support. Such support, however, would be too limited to prevent situations arising in which the ESM would come to ‘own’ a country.
Within such a structure, the ESM/EMF is viewed literally as a financial stability mechanism, whose main function is to ensure that a bailout is no longer “alternativlos”, as Chancellor Angela Merkel used to say.