Germany: European monetary fund could grant aid under strict conditions, with ECB agreement

German minister: EMF aid would come at heavy price

BERLIN — Emergency aid from a proposed European Monetary Fund should come with strict conditions and a “prohibitive” price tag to boost market confidence, Germany’s finance minister wrote in an article published Friday.

Minister Wolfgang Schaeuble, with Chancellor Angela Merkel’s backing, is a prime mover behind proposals to set up an International Monetary Fund-like institution in Europe as a long-term response to issues raised by the Greek debt crisis.

They argue that the crisis has highlighted shortcomings in procedures for tackling excessive budget deficits in the 16 nations that use the shared euro currency.

Schaeuble argued in an article for the Financial Times that the possibility of a country going bankrupt or leaving the eurozone should, in principle, be kept open as a deterrent.

But first he said Europe should make “more decisive use” of the instruments it already has.

“From now on, a member state with an excessive deficit should not receive EU cohesion funds if it is not making sufficient savings,” Schaeuble said. However, he added that “the European body of regulations is still incomplete.”

Eurozone countries could be granted emergency liquidity aid from a European Monetary Fund to reduce the risk of defaults, he said.

“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,” Schaeuble wrote.

The country involved should be excluded from the decision-making process, and political decisions about aid should be taken in agreement with the European Central Bank, he argued.

Schaeuble said aid could be coupled with stricter sanctions for running excessive budget deficits.

“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,” he wrote.

“The prospect of emergency aid connected with hard corrective fiscal action would boost the confidence of financial markets” and prevent crises deepening, Schaeuble argued.

Emergency liquidity “may never be taken for granted” and it must, in principle, still be possible for a country to go bankrupt, he said.

An uncooperative member’s voting rights in the euro group should be suspended and one whose finances are in disarray should be excluded from decisions on others’ finances, while a eurozone member’s voting rights should be suspended for a year if proceedings find that it “intentionally breached European economic and monetary law,” Schaeuble argued.

“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 wrote.

A spokeswoman for the chancellor, Sabine Heimbach, said Merkel and Schaeuble had consulted on the finance minister’s article, and that it “expresses a common desire and corresponds with the chancellor’s position.”

Still, Merkel has made clear this week that creating a European Monetary Fund would require changes to European treaties — a potentially long and difficult task.