The Euro-Area Crisis: Weighing Options for Unconventional IMF Interventions

Greece represents just a sliver of the eurozone’s GDP, and yet its debt is causing massive pain for Europe. The European Union has not developed secure mechanisms for preventing any one member from spreading vulnerabilities through the continent. Likewise, “under current conditions the IMF does not have adequate financial resources to address the euro crisis head-on,” argue Domenico Lombardi and Sarah Puritz Milsom in a paper for the Brookings Institution. Italy, in particular, poses a challenge: IMF’s capacity is €290 billion, yet in 2012, Italy’s Treasury must roll over more than €280 billion in debt. European leaders offer a three-part strategy, in increasing magnitude: first, corrective measures implemented at a national level; second, a firewall set up by the International Monetary Fund around vulnerable states; and third, the European Central Bank to take on remaining burden. Lombardi and Puritz Milsom also review policy options for the international community that focus on a greater role for the IMF, which could organize loans with conditions for vulnerable states. – YaleGlobal