An IMF Program for the Eurozone

Note: This piece appeared as an Op-Ed in the Financial Times and was co-authored by Re-Define MD Sony Kapoor & Advisory board member Charles Goodhart


Whether or not Greece has to leave the eurozone, and whether or not a growth compact is added to the fiscal treaty, there is likely to be a further call – or calls – on the International Monetary Fund for help with funding firewalls to protect the eurozone from meltdown. The IMF should take this opportunity to be more robust than it has been in the past in dealing with Europe’s problems.

Unless the EU adopts a growth compact soon...

Re-Define's efforts for the Eurozone to adopt a Growth Compact are succeeding, albeit haltingly. Having first laid out such a compact to sit aside the Fiscal Compact in January when we are a lonely voice, we have now been successful in getting most EU institutions and several key leaders to come out in support of such an agreement at least in principle. This post, which frist appeared on Business Insider on Thursday the 3rd of May reminds EU policy makers about what the esstential elements of an agreement to try kickstart growth need to be.

Unless the EU signs up to a Growth Compact soon, we face social, political and economic disaster. Swift action on tax, banking and investment is the way out of the crisis.

European banking – A perfect storm?

The future of the Euro area banking system hangs in balance. It would not be an exaggeration to say that were it not for more than a trillion Euros of implicit and explicit public support in the form of capital injections and funding guarantees from Member States & liquidity support from the European Central Bank, the Euro area banking system could well collapse.

While some may think that, four years after Lehman’s collapse, the biggest problems of European banks are now over, that may not be true. All things considered, the biggest challenges for Euro area banks still lie ahead. In particular, the combination of largely unreformed banking models, large scale regulatory changes and uncertainties around their final shape as well as the worsening Eurocrisis mean that Euro area banks face very large, potentially insurmountable challenges.

The Eurozone dumbbell trap

The Eurozone is stuck in a dumbbell trap where economies are socially, economically & politically diverging clustering on either side of a dumbbell. The longer this divergence continues, the more likely that the European construction, the bar that holds them together may collapse under the weight of contrasting and conflicting needs & perspectives.

The spreads between Spanish and Italian bonds and German bonds are once again on their way up. Even as the borrowing costs for Spain and Italy come dangerously close to Euro area records, the German government is able to fund itself at all-time record low interest rates with significantly negative yields.

The Eurocrisis never went away, nor did we!


Many of you have noticed that Re-Define has been apparently missing in action having not sent out comments, given interviews or published papers or Op-Ed’s on the Eurocrisis or Financial Reform since the beginning of March. This was deliberate. It’s not that we have stopped working on these issues, far from it. It’s that we decided it would be healthy for us, given our sharp, but constructively critical tone, to stay away from the headlines for a bit.

Given the premature complacence that was creeping into policymaking circles, we got heat for continuing to insist the problems were far from over. For example, we were criticized in some quarters for being too negative at the last European Council  in March when we said “This European summit reeked of missed opportunities, premature celebration and undeserved backslapping. This may come back to haunt our leaders sooner than they think.” (2nd Mar)