In the marriage of international finances, the marriage counselor ― the International Monetary Fund (IMF) ― seems to be having a hard time figuring out exactly what its role has to be in the polygamous and polyandrous paganism of the European Economic and Monetary Union (EMU) comprising of 16 countries that share the same currency, the euro, along with the much larger European Union (EU) common market.
It is understandable albeit not sensible if Iceland, a country that was outside the EU, was disregarded by the rest of Europe when in crisis. It is neither understandable nor sensible for the EU to treat Greece likewise, for it is a part of the common core of the EU. The EMU, faced by an imminent change of leadership at the European Central Bank (ECB) in Frankfurt and the remarkably coincidental rise of the zombies who had both opposed and continued to wish for the demise of the common currency, appears to be paralyzed in its ability to come to Greece’s aid. The larger European Commission (EC) has no teeth in the treaties governing the union to do much either.
The stalemate of the EC-Greece marriage has little choice but to end or to seek counseling. Hence, enter the counselor, the IMF. Still, it is not sufficient if the counselor comes in, seeking to let the injured parties deal with their internal turmoil that arose because of foreign flirtations with shadow players such as Goldman Sachs, wants to only talk about harmony in the long run once the storm in the short run passes, because the storm first must pass for the subsequent tranquility to set in.
Sometimes, when egos the size of civilizations are involved in a tiff, the manner in which the counseling must be provided matters. The EC wants to settle the matter within to avoid the ignominy of being perceived as an impotent Europe. Perhaps that masquerade must be permitted to continue. The issue is, no matter who is seen as resolving the situation, what the substance of the resolution will be. The IMF must advise the EC and Greece to resolve the issue within the EC, aligning the short term with the long term: to help the marriage ride the storm now and to ensure that tranquility comes about in the future, even if it looks like it is the EC which is making those calls.
First, the ECB must be asked by the EC to open a short term lending facility to Greece to let Greece pay its debts to Goldman Sachs and others in a negotiated settlement, not to make them whole for their misjudgments. In exchange for the short term lending from the ECB, Greece must be asked to commit to a long term (10 years) restructuring of its public finances to bring them back into compliance with the EMU rules.
Second, the EC must learn from the debacle. It must put the Maastricht Treaty in the dentist’s chair to ensure that the milk teeth that are falling off are managed well for healthier permanent teeth to emerge which can better supervise the obligations of the member countries of the union. Without them, the EMU cannot aspire to expand by taking in more members.
Finally, the eurozone must begin to think seriously about the equivalent of the ECB for bank regulation which would then be reviewed by the IMF for global systemic risks along with the EMU’s monetary policy.