President Nicolas Sarkozy welcomes Greek Prime Minister George Papandreou, at the Élysée Palace, Paris, Sunday March 07, 2010.

Germany has given crucial backing for a proposal to create a "European Monetary Fund" that would act like the International Monetary Fund (IMF) in providing support for economically troubled member countries of the Eurozone.

German Finance Minister Wolfgang Schäuble has said 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.”

He also said the euro shouldn’t become a “football” for speculators and any new organisation wouldn’t compete with the IMF.

Last month, proposals for a European Monetary Fund were put forward by Deutsche Bank chief economist Thomas Mayer and Daniel Gros, director of the Centre for European Policy Studies in Brussels. Countries could draw on funds equivalent to the money deposited at the EMF and exceed that amount if they agreed to a “tailor-made adjustment program” supervised by the European Commission and governments, they said.

SEE: Finfacts article, Feb 2010; Europe: Learning lessons from the crisis as recovery remains "fragile" - -  for more on the Mayer/Gros proposals.

The EMF would levy countries which exceeded the Euro Stability and growth Pact annual ceiling of 3% of GDP (gross domestic product) and the excess of total public debt above 60% of GDP limit. This would discourage governments from running excessive debt and deficits.

Wolfgang Schäuble, German Federal Minister for Finance, Jean-Claude Juncker, Luxembourg Prime Minister, President of the Eurogroup and Jean-Claude Trichet, President of the European Central Bank, chatting prior to the Eurogroup meeting in Brussels, Monday Feb 15, 2010. Schäuble was injured in an assassination attempt in 1990 and has had to use a wheelchair since.

Greek Prime Minister George Papandreou, who announced a new austerity plan last week, on Sunday met French President Nicolas Sarkozy in Paris. Sarkozy said a number of EU countries were working on a support package for Greece, even though he said the Greek government may not need financial help.

"There are concrete, precise tools that we are studying, about which we are not disclosing any more details tonight, but which will allow us to show, when the time comes, that not only does Greece have political support, it will be supported in all possible aspects,"he said and added that his finance minister, Christine Lagarde, is working on the plan with her Eurozone colleagues, the president of the European Central Bank and the head of the European Commission.

Financial Times columnist Wolfgang Münchau says in the newspaper today that all the adjustment within the currency region, could come through the Eurozone’s current account balance, "which would turn from slightly negative to strongly positive. It is difficult to see how this could be done without a significant further devaluation of the euro."

In the Wall Street Journal on Sunday, George Melloan, a former columnist and deputy editor of the Journal editorial page, wrote that the euro has been a smashing success. He said at the time of writing, the US government was paying 3.64% to borrow money for 10 years; in the Eurozone, Germany 3.11%; France 3.40%; Spain 3.90%; Italy 4.03%; Greece 6.64%.

He wrote that the Eurozone would never miss Greece, which accounts for only 2% of its total GDP, but Greece would sure miss the Eurozone. The euro exchange rate for a revived drachma would look very unpalatable to Athenians shopping for German or Italian goods. A return to "Zorba the Greek" living standards would be a prospect. "Of course, there's always the IMF hovering on the sidelines hoping to find a new client, but Germany and France have wisely told the IMF devaluationists to butt out,"he said.

He wrote:"It's hard to ignore the parallel between Greece and three American profligate states, New York, New Jersey and California. They all got themselves into trouble in large part through excessive generosity toward public employees, in America as in Greece a powerful political constituency."

SEE: Finfacts articles, Feb 2010;

Ireland, Greece and leaving the euro

The EMU and the PIGS or PIIGS to the slaughter- - Greece's exposure to European banks.