IDEAS home Printed from
   My bibliography  Save this paper

The European Monetary Fund. A Systemic Problem Needs a Systemic Solution


  • Stephan Schulmeister



The deepening of the debt crisis in the euro area is due to three systemic causes which national governments are not able to overcome on their own. First, being members of a monetary union euro states cannot reverse the rise in public debt (caused by the financial crisis 2008) through devaluations. At the same time, they have no access to funds from a national central bank. Second, under "finance-capitalistic" framework conditions, speculators systematically exploit and strengthen the fiscal troubles in the weakest countries by driving up CDS premiums and interest rates to unsustainable levels. This (potentially) transforms a liquidity crisis into a solvency crisis. Third, these speculative activities widen the interest rate differentials within the euro area drastically thereby endangering the economic and political cohesion of the EMU and even of the EU. A systemic solution which restores the primacy of politics over speculation needs to stabilise interest rates for all euro countries. It is proposed to transform the European Financial Stability Facility (EFSF) into the European Monetary Fund (EMF). It would provide euro governments with financial means by selling Eurobonds. These bonds are guaranteed by all euro countries to an unlimited extent. The EMF would stabilise Eurobond interest rates at a level slightly below the level of medium-term economic growth (in nominal terms). The Eurobonds are held by investors with the EMF, they are not tradable but can be liquidated at any time. The EMF helps to restore sound public finances in euro countries in close cooperation with the ECB, the European Commission and national governments. To this end, the EMF provides funds for the euro states according to clear criteria ("conditionality") which are not exclusively restrictive.

Suggested Citation

  • Stephan Schulmeister, "undated". "The European Monetary Fund. A Systemic Problem Needs a Systemic Solution," WIFO Working Papers 414, WIFO.
  • Handle: RePEc:wfo:wpaper:y:2012:i:414

    Download full text from publisher

    File URL:
    File Function: Abstract
    Download Restriction: no

    Other versions of this item:

    References listed on IDEAS

    1. Jean Pisani-Ferry, 2012. "The Euro crisis and the new impossible trinity," Policy Contributions 674, Bruegel.
    2. Paul De Grauwe, 2011. "The European Central Bank: Lender of Last Resort in the Government Bond Markets?," CESifo Working Paper Series 3569, CESifo Group Munich.
    3. Mayer, Thomas & Gros, Daniel, 2011. "Debt reduction without default?," CEPS Papers 4150, Centre for European Policy Studies.
    4. Peirce, Fabrizia & Micossi, Stefano & Carmassi, Jacopo, 2011. "On the Tasks of the European Stability Mechanism," CEPS Papers 4262, Centre for European Policy Studies.
    5. Stephan Schulmeister, 2010. "Boom-Bust Cycles and Trading Practices in Asset Markets, the Real Economy and the Effects of a Financial Transactions Tax," WIFO Working Papers 364, WIFO.
    Full references (including those not matched with items on IDEAS)


    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.

    Cited by:

    1. Fritz Breuss, 2012. "Towards a New EMU," WIFO Working Papers 447, WIFO.
    2. IMK Düsseldorf & OFCE Paris & WIFO Wien, 2013. "Die Krise schwelt weiter," IMK Report 80-2013, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.

    More about this item

    JEL classification:

    • E00 - Macroeconomics and Monetary Economics - - General - - - General
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation


    Access and download statistics


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wfo:wpaper:y:2012:i:414. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Ilse Schulz). General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.