European Union finance ministers agreed on Monday that Greece will receive emergency aid from the eurozone countries if the country proves unable to solve its debt crisis on its own.

However, opinions are divided on whether a separate monetary fund for Europe should be created to help out weak member states. Why not simply ask the IMF for help?

The scope of the help on offer is not yet clear, but Greece now knows it will receive support in its struggle to reduce its debt burden. The assistance from other eurozone countries (those with the euro as their currency) will come in the shape of loans or guarantees. For years, Greece failed to report its fast-growing budget deficit -currently at 13 percent - whereas the limit for eurozone countries had been set at three. EU government leaders have yet to approve the emergency aid offer for Greece.

At their meeting, the EU finance ministers also discussed the possible creation of a European Monetary Fund, a proposal by German Finance Minister Wolfgang Schäuble. He suggests all eurozone countries make a contribution in proportion to the size of their economy. The EMF could then - under very strict conditions - make loans to weak countries like Greece, which is almost bankrupt. Alexander Law, a Paris-based economist, believes the plan was mainly conceived because Europe finds it too humiliating to ask the International Monetary Fund for help in sorting out its problems.

However Willem Buiter, senior economist with Citigroup in London, believes a European Monetary Fund would be much more effective. For example, the IMF can only do business with governments, whereas an EMF could choose to limit itself to saving those banks which have financed Greece's national debt. In that way, the financial sector would be spared a crisis and the Greek state would be the only party faced with a major problem.  

The long haul
Alexander Law, however, sounds a warning note. He believes the creation of an EMF will take forever. After all, each country will have to grant individual approval.

Willem Buiter disagrees and says an EMF could be realised in two years. The EU treaty includes provisions which allow a vanguard of member states to go ahead of the rest with such plans. A 'vanguard' group like that would not necessarily have to include all eurozone countries in starting up a European Monetary Fund.  

Mr Buiter may be being slightly over-optimistic, considering that the Germans want an EMF to have the power to impose radical sanctions, including suspending a member state's voting rights or, in a worst-case scenario, throwing it out of the eurozone entirely. Such sanctions would require amendments to the EU treaty and that would entail years of delays.

Huge reserves
Mr Buiter says the EMF will need reserves of at least 1,000 billion euros, more than four times the funds available to the IMF. However, the Citigroup economist says this will be the only way to give it real clout. It would also have a positive effect by helping to deter currency speculation. Such huge sums would require the participation of at least France and Germany, but Paris has expressed little interest in the plan so far.

Inevitable
Nevertheless, Mr Buiter believes the creation of a European Monetary Fund is an inevitable consequence of the introduction of the euro.

"It [...] was immediately clear to a large number of people when the euro was created, but was ignored because it did not seem politically feasible. People chose to forget about it, hoping things would go well, at least for a while. And also hoping that if things did go wrong, politicians would be willing to take that next step. So now it's time to make a choice."

The idea for an EMF was indeed discussed back in 1978 and 1985, but it remains to be seen whether the time is now ripe for its creation. One thing is for sure - the plan has come too late to provide a solution to the Greek crisis. That will have to be solved the old-fashioned way: with temporary expedients and stopgap measures.