As the debate over a European Monetary Fund continues, this column argues that Germany’s enthusiasm for the new fund lies in its desire to impose fiscal discipline on countries it didn’t want in the Eurozone in the first place. The EU is not Germany and despite its dysfunctional diversity, the avoidance of a currency crisis in Greece shows that it works.

If a European Monetary Fund does happen, how would it work? This column proposes a European Sovereign Insurance Scheme to sell bond insurance on EMU members' sovereign debt. In good times the insurance fees would allow the EMF to build up a capital cushion. In bad times, the EMF could use these funds to facilitate an orderly unwinding of the default – while imposing tough conditions.

Discussions over a European Monetary Fund have gained momentum over the last week. This column argues that regionalising the IMF is sub-optimal. But discussions over a European Fund offer an opportunity for a complementary fund, which can offer a reference for Asian countries.

Europe was caught totally unprepared for the pressure on public debt that followed the global crisis. This column outlines a proposal for a European Monetary Fund with which, it argues, the EU would be much better prepared to face these difficult times.