Policymakers are debating whether a proposed 'European Monetary Fund' would require changes to the EU's Lisbon Treaty, as predicted by German Chancellor Angela Merkel. The EU executive believes it would, while politicians on the margins say it would not.
"Plans for a European Monetary Fund could imply that we indeed need to change the EU treaty," a European Commission official told EURACTIV.
However, socialist policymakers argue that a monetary fund, or as they have proposed it, a 'trustee fund', would not require any changes to the treaty. The prospect of treaty change would dissuade EU leaders from moving ahead and is reminiscent of recent referenda on the ratification of the Lisbon Treaty.
Socialists want 'trustee fund' without treaty change
The Party of European Socialists (PES) has come up with a parallel proposal that, they argue, would be a legitimate plan under the Lisbon Treaty's current terms.
It is based on the EU's balance of payments tool, which has helped non-euro countries to deal with their deficits.
A provision in the EU treaty for aid to any member state "threatened with severe difficulties caused by exceptional occurrences beyond its control" would provide the linchpin for such a fund, according to the socialists.
The proposal looks similar to a Eurobond as the Commission would lend its weight to borrow from the bond market to give the defaulting country a loan.
However, the Commission is not convinced by the PES proposal. The official noted that using the provision suggested by the socialists – aid for "exceptional circumstances" – would not provide the grounds for a systematic fund.
PES President Poul Nyrup Rasmussen maintains that the plan would provide a medium-term solution, whereas the EMF would be part of a longer-term strategy.
He accused Germany's chancellor of exchanging leadership for "making announcements to no avail".
Germany's EMF proposal was not only tied to "extreme conditions," Rasmussen said, but the fund would also give speculators more reason to tip defaulting countries over the edge.
"They are only interested in punitive measures. Our plan prioritises not only a 'cordon sanitaire' against speculators, but also how we can best promote growth and jobs."
EMF a smokescreen?
Some accuse Germany of hiding behind a smokescreen of tougher economic reform to ensure that its export-heavy economy is not destabilised by excessive deficits in its southern trade partners, Portugal, Spain, Italy and Greece.
"Germany is just making hollow threats and is just trying to back Greece into a corner," a high-ranking American official close to the reform agenda told EURACTIV, criticising German plans for a European Monetary Fund.
Daniel Gros, a Brussels-based policy expert who says he is in cahoots with the European Commission on a possible European Monetary Fund, argues that the EMF is not a smokescreen and that Germany is in prime position to push the plan all the way to fruition.
"Germany will be able to push this [EMF] through because other member states need Germany to fund a loan for Greece," Gros, from the Centre for European Policy Studies think-tank, told EURACTIV.