Leading German central bankers have come out strongly against plans to create a European monetary fund to help eurozone members that get into financial difficulties. 

On 7 March, Wolfgang Schäuble, Germany’s finance minister, said he would “shortly” produce proposals for a European monetary fund. The idea of the eurozone having its own fund has come to the fore because of Greece’s current financial difficulties. On the basis that the eurozone should be able to solve its own problems when a member needs rescue, eurozone governments want to avoid having to turn to an external organisation such as the International Monetary Fund.

But Axel Weber, president of Germany’s central bank, said on 9 March said that creating such a fund risked “institutionalising emergency assistance”, which would weaken market disciplines on countries with a poor grip on their public finances. Weber said that such an institution could be useful only if it was a strong mechanism for monitoring eurozone countries’ financial policies and ensuring strict adherence to the treaty limits on deficits.

Sending the wrong signals

Jürgen Stark, chief economist of the European Central Bank, said that the fund would not be compatible with the legal basis of the eurozone. He warned it would lead to “fiscal transfers at European level which would prove very expensive and would send the wrong signals and would burden countries with sounder public finances”.

The idea of creating a European fund has strong political backing from Nicolas Sarkozy, France’s president, and Angela Merkel, Germany’s chancellor, although Merkel said this week that such a fund could be set up only by changing the EU’s current treaty. “Without treaty change we cannot establish such a fund,” she said. Modifying the Lisbon treaty would take several years, and would be a highly risky political exercise, in view of the difficulties of getting the Lisbon treaty in place.

The European Commission said this week that it was working on proposals for improving the stability of the eurozone, including creating such a fund. A Commission spokesman said on 8 March that there would be a proposal on improving economic co-ordination and surveillance in the eurozone in the coming months.

German finance ministry officials confirmed on 10 March that a European monetary fund would not deal with Greece’s current problems, but would be a longer-term project.

Michael Offer, a spokesman for the German finance ministry, said that such a fund would “not serve the current crisis” but would be “oriented to the long-term” as part of efforts to improve the mechanisms for ensuring stability in the eurozone.

The spokesman confirmed, however, that Germany’s finance ministry would come forward with precise proposals for a European monetary fund “soon”. He stressed that work on such a fund was “still at the beginning”.