International Monetary Fund Managing Director Christine Lagarde proposed to create a “rainy-day fund” for the euro area economies.
The member countries should contribute each year to build up assets in goods times, Lagarde said in a speech in Berlin on Monday. Then, depending on the depth of a downturn countries would receive transfers to help them offset budget shortfalls, Lagarde said.
In extreme situations, she said the fund would be allowed to borrow, however, any borrowing would be repaid by members’ future contributions.
The capacity may not be enough to solve the next crisis — but it certainly would help, said Lagarde.
IMF chief said if the euro area is to be an effective compass, it cannot only be an economic union of convenience in calm waters. It needs to be strong enough to shield the members against storms.
“A more unified euro area can be a compass to prosperity for the region and a beacon of hope to the world, Lagarde added.
She observed that the global recovery has finally turned into a sustained and broadly shared upswing. But there are other, forceful headwinds threatening. “Think of the rise of populism and the short-sighted siren call of protectionism,” Lagarde said.
Lagarde suggested that as the next step of euro area economic integration, member countries should focus on a modernized capital market union, an improved banking union and a move toward greater fiscal integrations.
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