Eurozone Hopes Fall to IMF

11/29/2011 6:30 am EST


Jim Jubak

Founder and Editor,

Since Germany does not want the European Central Bank to directly save the Eurozone, MoneyShow’s Jim Jubak thinks that the IMF will have to play a key role in saving the weak European countries.

You know, it would be really great to be the International Monetary Fund (IMF) right now, because, you know, they’re really, really popular.

Not because they’ve got a lot of money—because they really don’t. Not because, you know, they’re beautiful and have a house on the beach or something like that. No, the thing is that they’re really the best face-saving mechanism in town as far as the Eurozone goes.

Now, basically we have the collapse of the Eurozone, the collapse of the euro as a currency, the collapse of debt in yada, yada, yada country. You can fill in the blanks. And we’ve got Germany sitting there saying, “No, we’re not going to allow the European Central Bank to get involved in this. We’re not going to do it ourselves. We’re not going to fund them. No.” That’s all they’re saying over and over again.

Well, the only way to bridge the German “no” to get something going is to find somebody who can act as kind of a funnel, if you will—a facade, so that it will look like the ECB is not involved and the money can flow sort of through secret channels.

It will look like the IMF is doing it. That, at least, looks like the best shape for the deal that might emerge between now and December 9, 2011, which is the date for the next big summit of European leaders.

If there’s no plan that emerges between now and then, I think we’re going to see the markets go completely nuts. It will make the current panic look like a walk in the park, because if there’s no plan by then, it really means that there really isn’t going to be one.

If this isn’t enough pressure for the markets to make people react, I don’t know how much more pressure the markets can put on it. So, I think it’s really going to wind up being what role can we concoct for the International Monetary Fund that lets the stuff that’s necessary happen.

It looks like what the mechanism might be is, basically, the IMF would set up a rescue program with this country or that country. The IMF has got a lot of experience doing this, and knows how to negotiate the rules to get budget changes.

The money would flow through back channels, from the ECB, and this is absolutely permitted under the rules of the European Central Bank, unlike questions about whether it’s permitted to actually get involved with Spain and Italy. It could do it with the IMF. It wouldn’t be a problem.

The IMF would be the front person. The ECB wouldn’t get involved in deciding whether Italy had done enough to make a deal possible. That will, again, be all up to the IMF.

So, this looks like something that might actually enable the Germans to continue to say no and the problem to actually get solved. Watch the IMF.

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