A rescue plan to help EU members that default on debt repayments is already in the works, says Economy Commissioner Joaquin Almunia
The European Union is able to help any member of the euro area that defaults on debt repayments, economy commissioner Joaquin Almunia said on Tuesday (3 March), adding that a rescue plan has already been drawn up, but that it would not be "clever" to reveal such solutions in public.
"If a crisis emerges in one euro area country, there is a solution before visiting the IMF," he said during an address to the European Policy Centre, a Brussels based think-tank.
"You can be sure that there is a solution. And you can be sure that it is not clever to tell you in public what the solution is. But the solution exists...we are equipped intellectually, politically, and economically to face this crisis scenario."
Later in the day a commission spokesperson referred to the balance of payments facility that has been used to support both Latvia and Hungary.
"The same way we have a particular instrument that we used for Hungary and Latvia to help EU countries outside the euro area...that solidarity would be equally be displayed one way or the other [to eurozone countries]."
The balance of payments facility was set up in 2002 to allow the commission to make loans to non-euro area countries experiencing difficulties meeting debt obligations.
The commission raises the necessary funds by issuing bonds on the international money markets. In December, ministers decided to increase the facility's lending ceiling from €12 to €25 billion.
German Chancellor Angela Merkel signalled last month that her country might come to the help of euro-zone countries experiencing financial difficulties.
However, Mr Almunia re-iterated on Tuesday that government bail-outs are prohibited under monetary union, as is the purchase of national bonds by the European Central Bank.
Likewise, he was quick to dismiss the idea of a euro-area break-up. "The probability of this happening is zero. Who is crazy enough to do this? Nobody."
Instead he pointed to the increasing list of countries clamouring to join the eurozone as well as calls from candidate countries for accelerated access.
Poland hopes to join ERM-II next year. This is the normally two-year waiting period during which governments must maintain a stable currency before becoming a full member.
However Finland, Italy and Slovenia all completed ERM-II is under two years, raising the prospect that current candidate countries may follow suit.
In parallel with euro-area membership, the debate over the possible issuance of 'EU bonds' has intensified in recent weeks. States whose borrowing costs have skyrocketed, such as Italy, whose finance minister favours such a move, would likely benefit from cheaper borrowing if a common bond for the euro-area was created.
However Germany and the Netherlands oppose moves towards EU bonds, fearing they would drive up the cost of their borrowing. Similarly, non-euro area states are sceptical about the idea, concerned that investors would no longer buy their national bonds when faced with the safer EU bond.
Mr. Almunia acknowledged the current opposition to the idea but did not rule it out in the future.
"It's not politically viable today but maybe tomorrow," he said.
Commission submission to European Council
On Wednesday, the commission will present its contribution to the European Council on 19-20 March.
Speaking to Socialist MEPs ahead of publication of the commission's position, Mr. Almunia said that the top priority would be the restoration of normal credit flows, otherwise national stimulus packages would not have the desired effect.
He also mentioned the need for strengthened regulation of the financial sector. "It should not only be better regulation but more regulation," he stressed.
He indicated that the commission had been impressed with the report on financial regulation presented last week by the high-level group of financial experts headed by Jacques de Larosiere.
"I am sure the commission will adopt initiatives with as much ambition as the treaty allows," he said, indicating that the commission would support many of the initiatives contained in the report, provided a treaty change was not necessary for their implementation.
The report calls for a European Systemic Risk Council to be set up, a body designed to gather information on the potential financial risks faced by the EU economy.