The Future of the Euro: Moment of Truth for Europe's Common Currency

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There is considerable skepticism about the idea of an EMF. "I don't believe that we will get very far with this form of technocratic regulation," says Kai Konrad of the Max Planck Institute. Klaus Zimmermann, head of the German Institute for Economic Research (DIW), also believes that it doesn't make much sense to "create yet another naval gazing organization."

Jörg Krämer, chief economist at Commerzbank, is worried that an EMF could undermine the Stability Pact even further, because, on the one hand, rules would be established to encourage solid government finances and, on the other hand, the EMF would create mechanisms to address the possibility of those rules being violated. "This makes the system less credible from the start."

There is yet another problem: It will take years to develop an EMF. And if Europeans truly intended to create a counterpart to the IMF, they would even have to reopen the Treaty of Lisbon. However, any amendment to the contract that serves as the basis of the EU requires a unanimous vote, and the corresponding parliamentary resolutions in all member states -- and, in Ireland, a referendum.

Were the euro countries to overcome the hurdle by creating a treaty on the model of the Schengen, border-free travel agreement, it would result in a watered-down version of the EMF. Should the idea get that far, Germany could still pose a problem, because its Federal Constitutional Court has already made it clear that the transfer of further competencies to the EU is likely to cause problems.

Despite the many obstacles, Europe's Economic & Currency Affairs Commissioner Olli Rehn intends to develop a concept for an EMF by June. However, the commissioner has already made it clear that this would be only one of many possible instruments. Politicians in other euro countries are also being noncommittal. "I see no need for the member states to hand over economic policy competencies to a European institution," Irish Vice President and Economics Minister Mary Coughlan told Handelsblatt. And French Finance Minister Lagarde said that the proposal was not a priority for the euro countries.

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• Part 1: Moment of Truth for Europe's Common Currency
• Part 2: Is Europe Laying the Foundation for a Common EU Economic Government?
• Part 3: How Can the EU Stability Pact Be Made More Robust?
• Part 4: What Should the EU Financial Constitution Look Like?
• Part 5: Could a European Monetary Fund Help in an Emergency?
• Part 6: How Likely Is an EMF?