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Saturday, April 20, 2013

Is the E.U. Relying Too Much on the IMF?

According to the New York Times, the IMF had more influence in the European debt crisis than did many E.U. states. Put another way, Christine Lagarde, head of the organization, became “a quasi head of state.” Without the advice and money from the IMF, the euro might have collapsed. If one could believe the rhetoric, the E.U. itself might have broken up. But the threat to the Union lies not in the euro, but, rather, on the emphasis on the state governments and in particular their respective officials. Indeed, the crucial role of the IMF during the debt crisis may have been in looking out for the interests of the E.U. in contradistinction to the various interests of the state governments. “In the absence of a strong federal government in Europe,” according to the Times, the IMF has helped “impose order on quarreling [state] leaders.” Put another way, if the balance of power in the federal system did not reside with the states at the expense of the federal government, the Europeans would not have had to rely on the IMF so much. For example, Lagarde played an important role, according to the Times, in “overcoming German reluctance to accept proposals intended to strengthen the euro zone, like a centralized bank supervisor.” Because the proposals involved shifting additional governmental sovereignty from the state governments to the federal level, the heads of the state governments faced a conflict of interest in assessing whether to support a federal regulator even though it would be in the interest of the whole.

The full essay is at "Essays on the E.U. Political Economy," available at Amazon.