Proposals for a European Monetary Fund

There are lots of stories in today’s press about the German-backed proposal to introduce a new European Monetary Fund to help out EU states in difficulty. Setting up the fund would require a new treaty, which would take a long time. So, on the face of it, this isn’t about helping out Greece, though it could turn out that Greece becomes the “test case” for how an EMF would operate.

One aspect of this story that I’m having some trouble understanding is why the IMF cannot be used to assist an EU member. The Irish Times Cantillon column explains the argument as follows. Current circumstances imply that:

The only possible lender of last resort is thus the International Monetary Fund, but an IMF intervention in a euro-zone economy would be a mortal blow to the credibility of the euro.

Ok, here’s a question. What does “mortal blow to the credibility of the euro” actually mean? And if it means something concrete (and bad) why does an IMF intervention produce this bad outcome while an EMF intervention does not? Answers on an electronic postcard …