Commentary by Matthew Lynn March 9 (Bloomberg) — “Who you gonna call?” wasn’t just a catchphrase in the 1984 film “ Ghostbusters .” If the worst happens in Greece, Spain or Portugal, we’re going to hear it all over again, and Europe’s taxpayers will want to know the answer. The European Union? The European Central Bank? Or the International Monetary Fund? Senior officials, including ECB President Jean-Claude Trichet , have suggested it would be a humiliation for a euro- area country to call on the IMF for a rescue package to prevent a sovereign-debt default. European problems must have European solutions, they insist. That’s where they are wrong. This is no moment for pride. If emergency funding has to be organized, it should be the IMF that takes the lead. It has the expertise, it can absorb all the flak, and the “no bailout” rule would remain one of the fundamental principles of the region’s common currency. In the last few weeks, Greece in particular has been publicly toying with the idea of calling on the resources and skills of the IMF to help with the financing of the country’s budget deficit, equal to 12.7 percent of gross domestic product. Greek Prime Minister George Papandreou said last week the Washington-based lender might have a role in resolving the crisis. “If markets don’t respond as we would like them to, due to their speculative behavior, then the final resort would be the International Monetary Fund,” he said on March 3. Not ‘Appropriate’ The next day, Trichet made a point of ruling that out. Calling on the IMF wouldn’t be “appropriate,” he said at a press conference in Frankfurt. Most European leaders would agree. German Finance Minister Wolfgang Schaeuble has even backed a European Monetary Fund as an alternative to the IMF. Some clarity is needed. It’s not just Greece that has a huge fiscal deficit. So do Portugal, Spain, Ireland and, to a lesser extent, Italy. Any of those countries might find itself under attack from the debt markets. In extremis, it might be impossible to sell the bonds to finance those deficits. It needs to be clear who they turn to for help in those circumstances. The reluctance of senior EU and ECB officials to see the IMF leading a rescue package is understandable. The euro is meant to be a strong currency for strong countries. The IMF flies in to help poor countries in disarray. There is no question it would be embarrassing if a euro member had to go cap in hand to the IMF. The reputation of the whole region would be tarnished and the euro’s future would be in jeopardy. Crises Need Experts And yet there are good reasons for them to swallow their pride and let the IMF come in and do its work. First, it has the expertise in dealing with countries that have lost the confidence of the global capital markets. It has the people and the experience to handle those situations. The ECB or a new European Monetary Fund could develop those skills, but let’s be honest, if you had a heart attack, would you want an experienced cardiac team looking after you? Or doctors who turn up with textbooks under their arms, promising that they learn fast? A crisis is no time to experiment. Second, the medicine is going to be brutal. For any euro- area country that has to narrow its deficit, there will have to be deep cuts in public spending. Wages will be reduced, jobs lost, and retirement ages raised — the kind of measures the Irish have been taking to bring their public spending under control. It isn’t going to be popular. The IMF is better suited to being the “bad cop.” It can take all the criticism and divert public anger away from the EU and the euro. No Bailout Third, calling in the IMF will preserve the no-bailout rule . When the euro was established, it was decided that member states shouldn’t have to bail each other out in the event of a fiscal crisis. That was important. Taxpayers in Germany don’t want to feel they are being made to pay for less-responsible governments in Greece or Portugal. If they are forced to, they might decide it’s not a club they want to be in anymore. Seeking help from the IMF gets around that situation. The world’s main developed countries are the members and they contribute to its funding . If an emergency loan needs to be organized for Europe’s laggards, it wouldn’t be the euro members helping them out. It would be the whole world. The “no bailout” rule between euro members would remain in place. Of course, the crisis could also be resolved within the euro area. The common-currency members are meant to be a family of nations in a zone of economic cooperation. It’s not much of a family if they aren’t willing to help each other. The IMF solution still makes more sense. That should be sorted out now, so that next time the bond markets attack a euro-member state, we all know who they’re going to call. ( Matthew Lynn is a Bloomberg News columnist. The opinions expressed are his own.) Click on “Send Comment” in the sidebar display to send a letter to the editor. To contact the writer of this column: Matthew Lynn in London at matthewlynn@bloomberg.net
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IMF’s `Ghostbusters’ Are Best Choice for Greece: Matthew Lynn
