Strengthening the ESM can help to prevent crises and enhance deeper
financial integration in the euro area. Yet, mislabelling the ESM as
“European Monetary Fund” will not do the trick. Instead, a revamp of its
precautionary credit line could create a meaningful instrument, built
on the existing policy framework, by incentivising strong economic
policies and guarding against financial market turbulence. However, the
devil is in the details. The design of such a facility has to be well
thought through, to navigate difficult trade-offs.
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