There were two developments that were particularly positive
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The German finance minister Wolfgang Schäuble has said that a proposed European version of the International Monetary Fund (IMF) to help member states who find themselves in financial difficulty would need to be backed by stiff financial penalties.
Schäuble first raised the idea of a European Monetary Fund (EMF), modelled along the lines of the IMF, in comments to a German Sunday newspaper, Welt am Sonntag, last weekend.
Writing in the Financial Times today, Schäuble said that such a fund could be used as a source of emergency liquidity aid to reduce the risk of default by Eurozone member states who find themselves in financial trouble.
High price must be paid for emergency aid
However, the German finance minister insisted that “strict conditions and a prohibitive price tag must be attached so that aid is only drawn in the case of emergencies that present a threat to the financial stability of the whole euro area”.
“Emergency aid could also be coupled on a mandatory basis with stricter sanctions within the framework of budget deficit proceedings,” he said.
“Monetary penalties could be imposed immediately and, once the aid and cooling-off period end, enforced against the member state without any recourse to reclaim the fine.”
According to Schäuble, “the prospect of emergency aid connected with hard corrective fiscal action would boost the confidence of financial markets, thus preventing a deepening of the crisis and obviating the Eurozone members’ need to call upon the IMF in future”.
Expelling Eurozone members
Schäuble also raised the prospect of expelling member states from the Eurozone as a last resort: “Should a Eurozone member ultimately find itself unable to consolidate its budgets or restore its competitiveness, this country should, as a last resort, exit the monetary union while being able to remain a member of the EU.”
He also said if it is discovered that a Eurozone member state intentionally breached European economic and monetary law, as in the case of Greece’s manipulated budget statistics, the voting rights that member should be suspended for one year.
Schäuble also suggested that from now on a member state with an excessive deficit should not receive EU cohesion funds, if it is not making sufficient savings.
Intense EU debate over need for EMF
The German finance minister’s comments come following intense debate with the EU over the need for an IMF-style fund.
The German Bundesbank president Axel Weber was among those who appeared to be throwing cold water over the foundation of an EMF, saying earlier this week that such a fund would distract from necessary fiscal consolidation and would go against the EU’s no bailout rules.
However, Schäuble received the support of German Chancellor Angela Merkel who said “stronger sanctions” were needed, although she pointed to a number of hurdles, such as a new treaty, which the EMF might face in getting off the ground.
The chair of the eurozone finance ministers Jean-Claude Juncker also said this week that the idea of an EMF did not breach the monetary zone’s “no-bailout clause”
Meanwhile, the European Commission President Jose Manuel Barroso (pictured) said this week that while the EMF was an interesting idea, it was more of a long-term proposal that could require a change in European treaties.