The German Bundestag Must Insist on Maintaining its Veto Powers in a New European Monetary Fund

The European Commission is planning to restructure the current European Stability Mechanism (ESM) into a European Monetary Fund (EMF). These plans have triggered a debate within Germany’s “Grand Coalition” over what monitoring rights the German parliament – the Bundestag – should have regarding this new organisation. Professor Friedrich Heinemann, head of the Research Department “Corporate Taxation and Public Finance” at the Centre for European Economic Research (ZEW), Mannheim, shares his thoughts on the plans.

“Depending on how it is structured, the EMF will be a powerful new financing instrument. However, this also means that this new lending instrument could potentially come with high liability risks for the countries in the Eurozone. Depending on how the new organisation is structured, transforming the ESM into an EMF could, for instance, lead to loans being granted to Eurozone countries on the basis of a majority vote in the European Parliament or European Council. As a result, Germany would then be liable for loans that have not been approved by the Bundestag.

The German government must not be naive in this matter. For Eurozone countries with high levels of debt, a generous monetary fund has the obvious appeal of finally doing away with the ESM’s strict lending conditions. The Bundestag must therefore insist on maintaining its veto powers – not only in the granting of future loans, but also in the design of the new institution itself.”

For further information please contact

Prof. Dr. Friedrich Heinemann, Phone +49 (0)621/1235-149, E-mail friedrich.heinemann@zew.de