Oct. 19, 2011, 12:00 a.m. EDT
The IMF should pull the plug on the euro
Commentary: Why throw good money after bad?
By Matthew Lynn
LONDON (MarketWatch) — Every financial crisis in the end boils down to one very simple question. Who pays?
The euro debacle has now reached that point. After the G-20 summit in Paris last weekend, there is increasing talk of getting the rest of the world to help bail the single currency out of the mess it finds itself in.
More money should be poured into the International Monetary Fund to help with the rescues, we were told. China and Brazil should step up their purchases of trouble euro-zone bonds.
That is crazy.
In fact, the IMF should pull the plug on the single currency. This is a mess of Europe’s own making. There is no reason to expect the rest of the world to pay for it — and if it does, it will only prolong the agony.
Even by the low standards of “grand plans to save the euro,” the scheme cooked up by the G-20 summit in Paris last weekend seems painfully weak. After all the hype and promises of a final fix for the troubled currency, not much of substance emerged.
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The crisis in the euro-zone is hitting growth right across the world. Markets stand constantly on the brink of a collapse. The banking system looks fragile. If there is one thing we know for sure about the economy, it is that confidence is crucial. Right now, uncertainty over the single currency is undermining that.
Everyone has an interest in seeing it resolved.
The trouble is, in the medium term it is crazy for the IMF to get involved in propping up the euro. In fact, the rest of the world — led by the IMF — should be calling time on the single currency.
Here’s why.
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Finally, a euro zone that is propped up by IMF and BRIC subsidies will be even more unstable than the one we have at the moment. Just think about it. It is hard enough for German politicians to persuade their voters to pay for euro-zone bailouts. How is it going to be possible to persuade the British, the Canadians, the Mexicans or the Taiwanese? Forget it. Any rescue scheme that depends on the willingness of the rest of the world to pay for this crisis is going to be constantly threatened with being thrown out by angry electors.
There is a useful role the IMF and the BRIC countries can play. Next time there is a G-20 meeting, they could tell Germany’s Chancellor Angela Merkel and the French President Nicolas Sarkozy that the cost of the euro-zone crisis was intolerable. If they made it clear they weren’t willing to throw more good money after bad it would accelerate the break-up of the single currency into more workable currency areas.
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Full article: http://www.marketwatch.com/story/the-imf-should-pull-the-plug-on-the-euro-2011-10-19
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