Commentary
Uri Dadush
{
"authors": [
"Uri Dadush"
],
"type": "other",
"centerAffiliationAll": "",
"centers": [
"Carnegie Endowment for International Peace"
],
"collections": [],
"englishNewsletterAll": "",
"nonEnglishNewsletterAll": "",
"primaryCenter": "Carnegie Endowment for International Peace",
"programAffiliation": "",
"programs": [],
"projects": [],
"regions": [
"Western Europe",
"North America"
],
"topics": [
"Economy"
]
}
Source: Getty
Other
Safeguarding Financial Stability?
Any external infusion of funds would best be channeled through the IMF, which would then pose demanding conditions not just on the countries directly borrowing from it, but also find ways to demand changes in the eurozone’s institutional set up and monetary and fiscal policies in the healthy core, to ensure the euro’s long-term survival.
By Uri Dadush
Published on Nov 18, 2011
Is the European Financial Stability Facility (EFSF) proving a success?
No. The EFSF continues to be underfunded by a huge margin and does not today place a credible firewall around Italy and Spain. What’s more, it lacks credibility as a rescue facility because the countries that are underwriting it are themselves in trouble—including not only Italy and Spain, but also, more recently and even more worryingly, France. EFSF loans together with IMF/EU conditionality, advice, and monitoring have failed to stabilize the situation in Greece; they have done better in Ireland and Portugal, but the jury is still out on whether their programs will succeed.
The recent attempt to leverage the EFSF’s relatively meager resources by turning it into a partial guarantee, instead of allowing it to function as a lending facility, remains unimplemented and in any event has entirely failed to convince the markets. Moreover, the attempt to entice private investors, as well as China and other countries with large reserves, to contribute to the fund has also failed, in part because third parties want to see Germany, France, and others put more of their own money on the line and adopt a far more convincing and unified approach to deal with the crisis.
The recent attempt to leverage the EFSF’s relatively meager resources by turning it into a partial guarantee, instead of allowing it to function as a lending facility, remains unimplemented and in any event has entirely failed to convince the markets. Moreover, the attempt to entice private investors, as well as China and other countries with large reserves, to contribute to the fund has also failed, in part because third parties want to see Germany, France, and others put more of their own money on the line and adopt a far more convincing and unified approach to deal with the crisis.
Read more
For the EFSF to succeed in stemming the crisis, it would need an additional 2 trillion dollars. The eurozone’s healthy core may be able to come up with about half of this sum without itself falling prey to a destructive crisis of confidence, but the rest would have to come from outside the eurozone. This external infusion of funds would best be channeled through the IMF, which would then pose demanding conditions not just on the countries directly borrowing from it, but also find ways to demand changes in the eurozone’s institutional set up and monetary and fiscal policies in the healthy core, to ensure the euro’s long-term survival.
About the Author
Uri Dadush
Former Senior Associate, International Economics Program
Dadush was a senior associate at the Carnegie Endowment for International Peace. He focuses on trends in the global economy and is currently tracking developments in the eurozone crisis.
- The Labors of Tsipras
- Greece, Complacency, and the EuroIn The Media
Uri Dadush
Recent Work
Carnegie does not take institutional positions on public policy issues; the views represented herein are those of the author(s) and do not necessarily reflect the views of Carnegie, its staff, or its trustees.
More Work from Carnegie Europe
- A Black Sea Truce Is About Global Food Security, TooCommentary
A summer of escalation in the Black Sea has hurt Ukraine economically and is exacerbating world food security. A truce is needed—as is a broader reframing of Europe’s Ukraine strategy.
Thomas de Waal
- Taking the Pulse: Does the EU Have a Germany Problem?Commentary
Are Germany’s economic, industrial, and political struggles becoming a liability for the EU’s ability to rise to the geopolitical moment?
Rym Momtaz, ed.
- Why MAGA’s Far-Right European Ties Will EndureCommentary
In supporting Europe’s far-right, MAGA and Russia both want the same thing: a weaker EU. Europe must defend itself without abandoning the openness these forces exploit.
Armida van Rij
- Letter from the Editor: Europe Takes Two Steps Forward But One Step BackCommentary
As we close out another season of Strategic Europe, it is worth taking stock of the deep shifts underway.
Rym Momtaz
- Europe from Scratch: Visions for a New European OrderReport
As the EU confronts profound challenges, several leaders have called for fundamental reform to the union’s model—but only modest, superficial changes have resulted. What if Europe really could be reimagined from zero today: What should such a redesigned European order look like?
Richard Youngs, ed.
