EU commissioner's bid to calm euro fears

EURO ZONE:EU ECONOMIC and monetary affairs commissioner Joaquin Almunia has said a solution would be found to bail out any euro zone state that gets into serious financial difficulty.

However, he told reporters yesterday that it would be better to keep any plan confidential.

“If a crisis emerges in one euro area country, there is a solution, . . . Before visiting the IMF, you can be sure there is a solution, and you can be sure that it is not clever to talk in public about this solution.

“But this solution exists. Don’t fear for this moment – we are equipped intellectually, politically and economically to face this crisis scenario, but by definition these kinds of things should not be explained in public,” said Mr Almunia at a seminar in Brussels.

The EU treaties provide a specific legal base to provide emergency financing to EU states that are not part of the euro zone. An EU bailout fund worth €25 billion has already been set up, and has provided €9 billion to Hungary and Latvia.

However, when the euro currency was established it was decided not to create a legal base that would allow an emergency bailout of a euro zone member.

Germany, in particular, feared that providing such a safety net could leave its taxpayers vulnerable to aid requests.

Yet in recent weeks Germany has signalled that it would not allow a euro zone member to default on its debt and would draw up contingency plans in case of a crisis.

German finance minister Peer Steinbrueck has also admitted that Ireland is in a “very difficult situation”, prompting speculation that it may need some financial help in the future.

In the absence of a specific legal base to provide EU assistance to a euro zone member in trouble, it is likely that Germany would advance loans to prevent a state from defaulting on its debt.

Any such aid would probably be tied to very strict conditions, similar to the ones that the IMF imposes on states that accept its emergency funds, said an EU source.

Meanwhile, Mr Almunia also dismissed any suggestion that the financial crisis would force any state to leave the single currency.

“The probability of this happening is zero. Who is crazy enough to leave the euro area? Nobody.”