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Spanish Prime Minister José Luis Rodriguez Zapatero and German Chancellor Angela Merkel watching a demonstration of a Telefonica phone at the CeBIT IT trade show in Hanover, March 02, 2010.
German Chancellor Angela Merkel on Monday welcomed proposals for a so-called European Monetary Fund (EMF), that would aid a Eurozone member country at a time of economic crisis, similar to the role of the International Monetary Fund (IMF).
German Finance Minister Wolfgang Schäuble said last weekend that he would "present proposals soon" for a new Eurozone institution that has "comparable powers of intervention" to the International Monetary Fund. In an interview with German newspaper Welt am Sonntag, Schäuble said the Eurozone should draw lessons from the Greek crisis, which has exposed the common currency area's lack of tools for dealing with a member country at risk of defaulting. The finance minister said he doesn’t support any IMF rescue package for Greece because that “would be an admission that the euro region can’t solve its own problems by itself.”
Chancellor Merkel said the European Union has lacked the tools to deal with the Greek debt crisis and “the sanctions we have were not good enough.” She told foreign correspondents in Berlin that "we want to be able to resolve our problems in the future without the IMF."
"We must consider what the European community or Eurozone can do in order, if necessary, to help in a situation ... without legal difficulties," she added. Merkel said the idea of a European Monetary Fund is "good and interesting" but there are many questions to look at.
"The questions of course must be asked: who pays in, how does one pay in, how independent is it from the (European) Commission, and so on?" Merkel said.
"You can't launch such a fund without a change to the (EU Lisbon) Treaty," she added. But if the EU wants to be capable of acting, "it will always run into situations in which the Lisbon Treaty can't be the end of the story."
The prospect of having 27 countries approve an amendment to the Lisbon Treaty, given the tortuous path of its approval, is the most daunting challenge.
The Maastricht Treaty, which provided for the establishment of the euro, banned bailouts.
Jürgen Stark, who is Germany’s representative on the executive board of the European Central Bank, criticised the plan to launch an EMF.
He says in an article published today in Germany's Handelsblatt newspaper that such a fund would send the "wrong incentives" and would likely result in costly financial transfers in the Eurozone.
"Instead of a European Monetary Fund, budget rules must be strengthened and strictly enforced through a stringent surveillance mechanism," he said.
Discussing the possibility of a European monetary fund that is similar to the IMF, Axel Merk, president and chief investment officer at Merk Investments says such a body must have teeth to punish members for fiscal irresponsibility. He speaks to CNBC's Martin Soong and Karen Tso:
