A European Monetary Fund? We already have one!

Recently there has been all this discussion about potentially creating a new institution--a European Monetary Fund--whose objective would be to replace the IMF as the lender of last resort to euro zone countries. The idea did not catch on and in the end the IMF has been invited to do its job in Greece (and probably soon elsewhere too).

I have just understood why European have given up on the EMF idea - I think this is because the IMF has become de facto EMF, without many people noticing.

How else to explain that the IMF decided (or rather it was decided by the IMF's French Managing Director, DSK) to contribute EUR 250 billion to the new European EUR 1 trillion stability mechanism without even formally asking the IMF's Executive Board for approval?

There was a lot of grumbling before about the Europeans not being able to use their muscle at the IMF because of unconcentrated voting power. There were calls for creating a single euro zone seat or even a single EU seat.

Now without any changes to the voting structure, the IMF has suddenly become a European piggy bank, where European, but also US and Asian money is unexpectedly supporting Greece and the euro zone.

It now turns out that Europeans were right to insist on appointing their own guy as the head of the IMF after all. It will be now much harder for them to let the position go when DSK retires.

I have just shared these thoughts with Prof. Eisuke Sakakibara, Waseda University, a Japanese guy who originated the idea of creating an Asian Monetary Fund following the Asian crisis in late 1990s (and who participated in today's NBP conference on the future of the international monetary system). He could not agree with me more.