Download publication

Policy Brief

The time is right for a European Monetary Fund

Two of the banking union’s pillars – common European supervision by the European Central Bank and common European resolution by the Single Resolution Fund – are up and running. But the third, common European deposit insurance, is still missing. The authors propose to design the EMF as part of a broader risk-sharing and market-discipline agenda.

By: and Date: October 30, 2017 Topic: European Macroeconomics & Governance

The issue

The creation of the European Stability Mechanism (ESM) and the banking union were instrumental in stemming the euro-area sovereign crisis. However, both remain incomplete. While the ESM reduces the risk of sovereign debt crises, it still lacks an instrument to deal in an orderly way with insolvency crises. This makes the no-bailout clause of the Maastricht Treaty toothless. Two of the banking union’s pillars – common European supervision by the European Central Bank and common European resolution by the Single Resolution Fund – are up and running. But the third, common European deposit insurance, is still missing. Furthermore, the governance of the ESM is wanting. Decisions to provide financial assistance are taken by unanimity, preventing swift crisis response when it is needed.

Policy challenge

The re-election of Chancellor Merkel and the election of President Macron create a new momentum for strengthening the euro area’s crisis framework. There is agreement to turn the ESM into a European Monetary Fund (EMF). We propose to design this EMF as part of a broader risk-sharing and market-discipline agenda. Risk sharing would come from the increased capacity of the EMF to intervene early in a sovereign or banking crisis and to act as a fiscal backstop to a complete banking union that includes European deposit insurance. Market discipline of sovereigns would come from the reduced exposure of banks to their home sovereigns and from a newly-established debt restructuring mechanism. The proposed transformation of the ESM into an EMF should be viewed as part of a wider institutional reform of the fiscal dimension of the euro area.

View comments
Read article More on this topic More by this author

Blog Post

The EU’s poverty reduction efforts should not aim at the wrong target

The EU cannot meet its ‘poverty’ targets, because the main indicator used to measure poverty actually measures income inequality. The use of the wrong indicator could lead to a failure to monitor those who are really poor in Europe, and a risk they could be forgotten.

By: Zsolt Darvas Topic: European Macroeconomics & Governance Date: February 18, 2020
Read about event More on this topic

Upcoming Event

Feb
20
12:30

The resurrection of the European Banking Union

At this event, Luis Garicano, member of the European Parliament, will present his two proposals to resurrect the European Banking Union: "a Safe Portfolio" and "a Single Resolution Board +".

Speakers: Tom Dechaene, Luis Garicano, Michala Marcussen and Guntram B. Wolff Topic: Finance & Financial Regulation Location: Bruegel, Rue de la Charité 33, 1210 Brussels
Read about event

Upcoming Event

Mar
31
12:30

How adequate is the European toolbox to deal with financial stability risks in a low rate environment?

Bruegel is delighted to welcome the governor of the Central Bank of Ireland, Gabriel Makhlouf. He will deliver a keynote address about how adequate the European toolbox is to tackle financial stability risks in a low rate environment. Following his speech, a panel of experts will further discuss the topic.

Speakers: Gabriel Makhlouf, Guntram B. Wolff and Agnès Bénassy-Quéré Topic: European Macroeconomics & Governance, Finance & Financial Regulation Location: Bruegel, Rue de la Charité 33, 1210 Brussels
Read about event More on this topic

Past Event

Past Event

Take a chance on me: Sweden considers the Banking Union

This event will discuss if Sweden should join the European banking union and the general state of the union.

Speakers: Fredrik Bystedt, Elena Carletti, Maria Demertzis and Pawel Gąsiorowski Topic: Finance & Financial Regulation Location: Bruegel, Rue de la Charité 33, 1210 Brussels Date: January 29, 2020
Read article More on this topic

Blog Post

A European anti-money laundering supervisor: From vision to legislation

In fighting anti-money laundering, the European Commission should act fast toward creating a central supervisory authority.

By: Joshua Kirschenbaum and Nicolas Véron Topic: European Macroeconomics & Governance Date: January 24, 2020
Read article More on this topic More by this author

Opinion

European capital markets union, by rule and by choice

While the euro is now a leading global currency and the European Central Bank has become a comprehensive banking supervisor, Europe’s markets have been treading water.

By: Rebecca Christie Topic: Finance & Financial Regulation Date: January 23, 2020
Read article More on this topic

Blog Post

A Major Step Toward Combating Money Laundering in Europe

Combating money laundering in Europe took a momentous step with finance ministers of France, Germany, Italy, Latvia, the Netherlands, and Spain putting forward a joint proposal.

By: Nicolas Véron and Joshua Kirschenbaum Topic: Finance & Financial Regulation Date: November 25, 2019
Read article More by this author

Blog Post

Bank regulation in the European Union neighbourhood: limits of the ‘Brussels effect’

The EU model of financial market regulation is increasingly copied by third countries. In this context, the EU’s efforts to promote its model beyond its borders should take into account the underdevelopment of financial markets in many partner countries, and the often insufficient capacity of regulators and supervisors.

By: Alexander Lehmann Topic: European Macroeconomics & Governance, Finance & Financial Regulation Date: November 20, 2019
Read about event More on this topic

Past Event

Past Event

Better governance, better economies

This event will feature the presentation of the 2019 EBRD Transition report, which focuses on governance in the EBRD regions.

Speakers: Daniel Daianu, Beata Javorcik, Zsuzsanna Lonti and Guntram B. Wolff Topic: European Macroeconomics & Governance Location: Press Club Brussels Europe, Rue Froissart 95, 1000 Brussels Date: November 20, 2019
Read article Download PDF More by this author

Policy Contribution

Crisis management for euro-area banks in central Europe

Euro-area bank integration has decreased as post-financial crisis national rules require banks to hold more capital at home. It might be undermined further by bank resolution planning. Either a Single Resolution Board takes the lead for the entire banking group or independent local intervention schemes need to be developed for crisis resolution.

By: Alexander Lehmann Topic: European Macroeconomics & Governance, Finance & Financial Regulation Date: November 19, 2019
Read article More on this topic More by this author

Opinion

Scholz's improved plan to complete the banking union

The head of German Finance has written in the Financial Times defending the need to deepen the banking union, now London is about to leave

By: Rebecca Christie Topic: European Macroeconomics & Governance Date: November 8, 2019
Read article More on this topic

Opinion

Politics, not policy will help Lagarde save the eurozone

Her success at helm of Europe’s central bank will depend on her ability to mend fences with hawkish policymakers.

By: Guntram B. Wolff and Rebecca Christie Topic: European Macroeconomics & Governance Date: November 4, 2019
Load more posts