EU leaders discuss the creation of a European Monetary Fund

The European Commission has stated its intentions to create a European Monetary Fund that could help rescue debt-hit countries like Greece. The College of Commissioners had their first discussion on a potential European fund in early March.

Ms. Merkel, the German Chancellor, called a European version of the IMF "a good and interesting idea", but warned that a new European treaty may be necessary to create such a fund. "We don’t want to get back into such a situation, but our instruments are not adequate to deal with such a situation," she said.

"The Commission is ready to propose a European instrument like this that would have the support of eurozone members," the EU’s Economic and Monetary Affairs Commissioner Olli Rehn told the Financial Times Deutschland. More details on the EMF, and how the members of the eurozone would finance it, may be ready by early June.

Rehn emphasised that financial aid would be linked to "strict conditions." "We are working closely on this issue with Germany, France and other EU member states," he added.

Italian President Giorgio Napolitano and German Finance Minister Wolfgang Schäuble have also shown support for the creation of a European version of the International Monetary Fund. The IMF provides emergency loans to countries with financal problems.

"We’re not planning an institution that would compete with the IMF, but for the internal stability of the eurozone, we need an institution that has the experience and power of the IMF," Mr. Schäuble told the Welt am Sonntag newspaper. "We should calmly discuss the consequences of the Greece crisis and should not rule anything out, even the creation of a European Monetary Fund," he continued.

Having a deficit over four times higher the EU’s limit, Greece has implemented a range of emergency measures, including sweeping tax hikes and deep cuts in public spending. The emergency action has caused nationwide strikes and protests, that have affected air and ground transport, as well as schools and hospitals. On an international level, the crisis has weighed heavily on the value of the common currency, the euro, on the financial markets.

The financial crisis has also highlighted differences in the EU, between the euro countries and those that have retained their own national currencies. Countries outside the eurozone have greater leeway in managing their finances as they can devalue their money.

French President Nicolas Sarkozy met Greek Prime Minister George Papandreou in Paris to discuss Greece’s austerity package.

Socialists in the European Parliament support the creation of such a fund, but believe the fund should be managed by the European Investment Bank (EIB). According to their programme the EIB, Europe’s lending arm, would borrow from the market at a reasonable interest rate. Countries experiencing financial difficulties could then borrow these funds at a similar rate.

For Further information

 European Monetary Fund being considered by Brussels
 EU reveals European IMF plan for eurozone

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