German FM favors euro zone rescue fund combined with heavy penalties

German Finance Minister Wolfgang Schaeuble on Friday fleshed out his idea for setting up an International Monetary Fund-style fund in the euro zone that would help bankruptcy-threatened states as the last resort, but stressed that any emergency aid should come with heavy penalties, including a possible expulsion from the euro zone.

"Eurozone members could also be granted emergency liquidity aid from a "European monetary fund" to reduce the risk of defaults. 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 in a guest column published in the Financial Times on Friday.

"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 said.

Schaeuble also stressed that emergency liquidity aid may never be taken for granted. "It must, on principle, still be possible for a state to go bankrupt."

"The monetary union and the euro are best protected if the eurozone remains credible and capable of taking action, even in difficult situations. This necessarily means suspending an unco- operative member state's voting rights in the Eurogroup," he said.

"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," Schaeuble added.

He stressed that economic and fiscal policy surveillance in the euro zone was insufficient to prevent undesirable trends in a timely manner, adding "From now on, a member state with an excessive deficit should not receive EU cohesion funds if it is not making sufficient savings."

Meanwhile he also called on all euro zone members to return to adherence to the stability and growth pact as rapidly as possible.

The idea of setting up a European monetary fund is gaining support from many politicians amid the Greek fiscal crisis, but many experts have questioned the usefulness of such a crisis fund in preventing future crises.

German central bank chief Axel Weber said on Monday "new institutions won't help if the existing ones are ignored."

The European Central Bank chief economist Juergen Stark has also rejected the idea of a euro zone rescue fund, saying that "it would be the start of a European financial compensation that could be very expensive, sets the wrong incentives and, ultimately, burden countries that have more solid public finances."

Source: Xinhua