In These New Times

A new paradigm for a post-imperial world

Eurozone ready to rescue members

Posted by seumasach on March 3, 2009


3rd March, 2009

Eurozone authorities would help a member state in serious economic difficulties before it needed to approach the International Monetary Fund because of a debt-default risk, according to a senior European Union policymaker.

“If a crisis emerges in one eurozone country, there is a solution before visiting the IMF,” Joaquín Almunia, the EU’s monetary affairs commissioner, said on Tuesday. “It’s not clever to tell you in public the solution. But the solution exists.”

Nervous financial markets are focusing their attention on Greece and Ireland, which among the 16 eurozone nations are the two under most pressure because of the world crisis.

“We are equipped intellectually, politically, economically, to face this crisis scenario,” Mr Almunia told a think-tank briefing in Brussels. He echoed statements last month by Peer Steinbrück, Germany’s finance minister, to the effect that Berlin would support emergency action to protect the eurozone if a country appeared at risk of being unable to refinance its debt.

Mr Almunia also turned on critics of the EU who say its response to the economic storm in eastern Europe – among countries in the EU, and others beyond its borders – has been inadequate.

At an EU summit on Sunday called to discuss the crisis, it was not the bloc’s western European countries but several central and eastern states that had spoken most loudly against a Hungarian proposal for a €180bn ($226bn, £161bn) financial aid plan for the region, Mr Almunia said.

“When someone says, ‘Give me a plan for the region’, I say, ‘It’s not a  question of a plan, but of analysis, of monitoring, case by case, problem by problem’.”

Commenting on proposals for joint EU government debt issuance, Mr Almunia said: “It’s possible and reasonable, but as a politician I know it’s not politically viable today.” He was referring to opposition from Germany, the Netherlands and others who suspect common bond issuance would impose costs on themselves for the benefit of countries guilty of fiscal indiscipline.

EU diplomats said one clue about how a eurozone rescue action might work lay in Article 100 of the European Union’s governing treaty.

This states that “where a member state is in difficulties or is seriously threatened with severe difficulties caused by natural disasters or exceptional occurrences beyond its control”, EU governments “may grant, under certain conditions, community financial assistance to the member state concerned”.

EU diplomats said it was certain that any assistance would be granted on strict conditions, such as cutting state expenditure and rebalancing public finances, just as the IMF would stipulate.

Mr Almunia said the crisis, though unprecedented in its severity, would not cause the eurozone’s break-up. “The probability of this happening is zero. Who is crazy enough to leave the euro area? Nobody.”

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