IMF Advice to the European Union
The International Monetary Fund (IMF) has recently released its advice towards the countries in the eurozone. The Fund primarily focused on the issues concerning fiscal discipline and the creation of a banking union.
According to Jörg Decressin, the deputy director of the research department, there is no need for periphery countries in the euro zone to implement hasty austerity measures if they continue to grow steadily. The signs of economic recovery were observed firstly in August this year, when the European Commission released its growth figures. The second quarter of 2013 marked fragile 0.3% economic growth. Decressin adds that for eurozone countries fighting with debt, such as Portugal, a positive growth rate is soon to rebound as well, so austerity might be for now postponed.
Moreover, the Fund says that the Union should speed up the creation of a banking union, which would increase investors’ confidence. If the banking union is not completed in a due time, “the euro area risks entering a lengthy, chronic phase of low growth and balance sheet strains,” IMF’s Global Financial Stability Report states.
The EU countries have already embarked on the two-pillar project of the banking union, but the implementation is lagging due to extensive political and legal problems. Recently, EU lawyers have raised concerns regarding the functioning, managing, as well as controlling such a union. In addition, Germany is not supportive of the current version of the institutional layout, under which the European Commission should lead the banking union. Moreover, worries linger that an amendment to the EU’s treaty will be needed to finish the entire project and secure its legislative well-being.