“Something must be done to deal with the eurozone’s sovereign debt problems. This is something. Therefore we should do this.”

Philosophers call this the fallacy of composition, and it’s behind many a “bold new policy initiative” – in Britain and around the world.

Now the same screwy logic is causing a flurry of bureaucratic activity in Brussels and Berlin regarding the creation of a European Monetary Fund (EMF), which will be discussed later today at the European Commission’s weekly meeting in Strasbourg.

The first half of the argument is right. As I’ve said before, (see The new eurobillions lottery and Thinking the unthinkable) the economic problems afflicting the so-called periphery of the eurozone (Greece, Spain, Portugal and the rest) are worrying in their own right.

But what makes them downright scary is the lack of any decent mechanism for dealing with them. An IMF-style source of conditional liquidity to help the likes of Greece might be helpful; that is, assuming one could ever be agreed – a big conditional in itself, as the German chancellor pointed out yesterday.

But that’s a short-term solution, at best. There are two larger problems standing behind the liquidity one. One is the problem of diverging European competitiveness.

If they don’t want the problem to recur, it is in the interests of the eurozone as a whole that deficit countries like Greece (et al) restore their competitiveness; ideally without a decade of grinding deflation and meagre growth.

They aren’t going to achieve that without more balanced growth across the zone, and stronger domestic demand in the trade surplus economies: primarily Germany and the Netherlands.

The other problem is solvency. Even if the outsiders restore some of their lost competitiveness (as Ireland has been doing, something I’ll discuss in a later post), many economists think that the peripheral members of the eurozone are going to come out of this process with unsustainable levels of public debt.

I know I keep banging on about this, but I’m convinced that sooner or later, we’re going to have to come up with a mechanism for “safely” restructuring sovereign debt in Europe.

When the bomb squad doesn’t think they can safely defuse a bomb, it finds a way to explode it in a contained environment.

Economists of a historical bent who look at the public debt mountain weighing on the global economy are starting to wonder whether we should do the same with suspect sovereign debt. The trick would be to indeed keep it “contained”.

Funnily enough, the then deputy managing director of the IMF, Ann Krueger, did propose a new Sovereign Debt Restructuring Mechanism for similar reasons, back in 2002.

It was a fairly modest proposal to begin with – more for developing countries than the likes of Greece. It was then watered down even further, largely by European members of the Fund, and it came to nothing. Now you wonder whether she was onto something.

So much for the history lesson. Would the European Monetary Fund – as discussed by the German finance minister, Wolfgang Schauble, this weekend – solve any of these larger problems? The answer is almost certainly no.

German officials have two reasons for supporting the idea. First, they would like there to be a way to give financial support for future Greeces without involving the IMF, or incurring the wrath of the German constitutional court by seeming to involve German taxpayer funds in a European bail-out.

Second, they would like a tougher mechanism for forcing deficit countries to clean up their act: a Stability and Growth Pact (SGP) with more teeth, perhaps withholding structural cohesion funds for countries that misbehave.

You might wonder why countries would slavishly toe the EMF line, when they were so happy to ignore the demands of the SGP.

You might also wonder whether it was worth creating an entirely new institution, simply to spare the blushes of Europeans who are embarrassed to bring in the IMF.

But these are not the biggest problems with the plan. The biggest problem is that there would be no symmetrical obligations on surplus countries to do their bit for achieving more balanced European growth.

Without that kind of symmetry, any such institution could well exacerbate the economic problem it was intended to fix, by putting an even more impossible burden on the periphery without any correspondent obligations on Germany – either to change policy, or to cough up for Club Med.

That imbalance in Germany’s favour is probably the best reason to doubt the EMF will actually happen. There’s just too little in it for everyone else.

But even if it did happen, there seems little chance of the EMF including any mechanism for restructuring sovereign debt. This was a key part of the original proposal floated last month by the European economists Daniel Gros and Thomas Mayer – and a welcome one.

As the US expert on financial crises, Carmen Reinhart, has said, an organization that could oversee orderly sovereign defaults in the eurozone would fill a useful gap in the existing financial architecture”. But don’t hold your breath.

Again, I have serious doubts as to whether an EMF will get off the ground. But if it does, it looks set to be the wrong kind of EMF, for the wrong sorts of reasons.

To return to where I started, the eurozone needs a crisis response mechanism for dealing with the likes of Greece. It also needs “bold new policy initiatives” to help the eurozone grow together over the next few years rather than deflate apart. It is much less clear than it needs a German version of the IMF.

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