European Union member governments and institutions are looking for ways to make the bloc more resilient to financial crises and more independent from external organizations. A decade after the start of the financial crisis, the bloc is studying reforms that will better prepare European governments and banks for financial shocks. But EU officials in Brussels and national governments will have to do so while trying to bridge member states' conflicting strategic interests.
According to a leaked document obtained by El Pais newspaper, on Dec. 6 the EU Commission will present a plan to turn the European Union's permanent bailout fund into a European Monetary Fund (EMF). The institution would be in charge of rescuing bloc countries in trouble, with an initial pool of 500 billion euros. The proposal is also expected to include creating a eurozone budget sometime in the future, but the leaked document does not specify its size or functions. The European Union could use the EMF for the resolution of failing banks. But important decisions, such as increasing the EMF's capital or rescuing a country, would require unanimity, while a qualified majority (85 percent of votes) would be sufficient to approve the disbursal of bailout tranches.
The plan is important because it suggests that the Commission is looking for a compromise between Germany and France. Following France's proposal, the European Union will try to make more money available for countries in trouble. But addressing Germany's concerns, the EMF would make any bailout reliant on implementing economic reforms and dependent on unanimous approval (giving Germany veto power).
The Commission's plan is also relevant because it shows the European Union's desire to reduce its links with the International Monetary Fund (IMF) and to increase the bloc's independence when dealing with financial crises. The IMF was involved in recent rescue programs in the eurozone, but it clashed with EU institutions over what policies to implement to assist countries in distress. The most notable case was the Greek financial crisis, during which the IMF determined that Greece should receive debt relief but the European Union refused.
More broadly, China and other emerging national economies are already creating new institutions to rival the traditional economic institutions created by the Bretton Woods system. Last year, for instance, China launched the Asian Infrastructure Investment Bank (AIIB), a competitor to the World Bank. In Europe, IMF reforms in 2015 diminished EU voting power, which may be playing into the EU’s determination to create its own monetary fund. Thus, if the European Union successfully becomes self-sufficient by creating its own monetary fund, the development could represent a further fracturing of the Bretton Woods system.
