Euro zone plans to create IMF-style body to reinforce economic cooperation, surveillance

08:32, March 09, 2010      

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Germany and France are planning to launch a new initiative to reinforce economic cooperation and surveillance within the euro zone, including the establishment of a European Monetary Fund (EMF), the Financial Times reported on Monday.

The paper quoted senior German government officials as saying that their intention is to set up the rules and tools to prevent any recurrence of instability in the euro zone stemming from the indebtedness of a single member state, such as Greece.

The first details of the plan, including support for an EMF modeled on the International Monetary Fund, were revealed at the weekend by German Finance Minister Wolfgang Schauble, who promised precise proposals in the near future.

According to the German minister, eurozone members could face penalties if they fail to curb deficit spending or run up excessive government debt. Possible penalties include cutting off those countries from EU cohesion funds, temporarily removing their rights to vote in EU ministerial meetings and suspension from the euro zone.

If France and Germany can agree on such proposals -- long urged by Paris -- they are likely to set the basis for the most radical overhaul of the rules underpinning the euro since the currency was launched in 1999, the paper said.

The German thinking emerged as Greek Prime Minister George Papandreou flew to Paris to seek the support of French President Nicolas Sarkozy for his government's drastic austerity program.

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