Formed in 1944 and made by 189 countries in the world, the International Monetary Fund (IMF) is an international organization created to oversee the financial stability, facilitate international trade, promote high employment and sustainable economic growth around the world. It always had a notable presence in Europe in providing financial advice and technical assistance.
RESPONSIBILITIES IN EUROPE
The IMF provides economic analysis and policy advice as part of its standard surveillance process for individual advanced and emerging European economies that culminates in regular (usually annual) consultations with individual member countries and, if relevant, EU institutions such as the ECB and EC. The bilateral surveillance staff reports for these consultations include assessments of the economic outlook, and economic and financial stability.
In addition to its policy discussions with the 19 individual members of the euro area, IMF staff also holds consultations annually for the euro area as a whole, similar to those held for other currency unions. Here, IMF staff exchange views with counterparts from the ECB, the EC and other European institutions in a number of areas, including monetary and exchange rate policies and regional fiscal policies, financial sector supervision and stability, trade and cross-border capital flows, as well as structural policies. The final staff report includes an overall assessment of the economic outlook, external and fiscal position, and financial stability of the euro area as a whole. As part of the euro area consultation, the IMF’s views on the economic outlook and policies of the euro area are presented to the Eurogroup, comprising the 19 finance ministers of the euro area.
INTERVENTIONS IN EUROPE
IMF and Brexit
THE IMF intervention have drawn an angry response from leave campaigners who have already said the fund should not interfere in the UK’s democratic process. The leave camp has also attacked its record on economic forecasting.
Responding to the latest IMF remarks, Matthew Elliott, chief executive of Vote Leave said: “The IMF has chosen to ignore the positive benefits of leaving the EU and instead focused only on the supposed negatives. If we vote leave, we can create 300,000 jobs by doing trade deals with fast growing economies across the globe. We can stop sending the £350m we pay Brussels every week. That is why it is safer to vote leave.”
The IMF said that Brexit could spark a stock market crash and a steep fall in house prices. In a report to conclude its annual assessment of Britain’s economy, it added that a leave vote would tie the UK up in trade negotiations that could drag on for years.
The resulting uncertainty would hit spending and financial markets, it said, estimating that even under a relatively benign scenario in which the UK negotiated a trade status similar to that between Norway and the EU, output would fall by 1.5% by 2019, compared with where it would be under continued EU membership.
Under that scenario, the UK would fall into recession in 2017, IMF officials said. “The implication would be negative growth in 2017,” said one official briefing reporters in a conference call.
In a baseline scenario in which the UK remains in the EU, growth would be expected to recover in late 2016, as the effects of the referendum waned. But the IMF’s experts also forecast various threats to the UK economy beyond the closely fought vote.