Merkel says EU bailout fund would halt speculators

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LUXEMBOURG (AP) — German Chancellor Angela Merkel said Tuesday that a European monetary fund to bail out eurozone nations in need would send a clear signal to markets speculating on the possible break-up of Europe's currency union.

She said Greece's debt crisis is forcing the European Union to make changes that would allow "coherent economic policy-making," such as a bailout fund for the 16 countries that use the euro.

The euro has slid against the U.S. dollar in recent months on worries over Greece's soaring debt as markets questioned what would happen if a eurozone country were unable to pay its debts — and whether it could rely on help from bigger euro nations such as Germany.

Speaking after a meeting with Jean-Claude Juncker, the head of the eurozone's finance ministers, she said a tighter framework that could handle a potential default by a eurozone country would send a clear "signal to markets that speculation cannot work."

"We are thinking of all eurozone nations," she said. "We agree that we must discourage financial market speculation."

She stressed that Greece was not looking for a bailout and had "done its homework" by promising tough budget cuts that had restored market confidence in the country's ability to handle its debt.

But she said the crisis is forcing other EU nations to ask "how do we get to coherent economic policy-making."

Her proposal for a European monetary fund, likely to be financed by EU governments, would not replace current EU budget rules that require members of the euro currency to stick to limits on debt and deficit that most have ignored since the financial crisis forced them to spend heavily to keep their economies afloat.

She said Monday that EU governments would have to draft changes to the European Union's Lisbon treaty to set up such a fund — a tough prospect after the treaty took nine years to be negotiated and ratified by all 27 EU members states.

The European Central Bank's chief economist Juergen Stark opposes such a fund, writing in the German daily Handlesblatt that it would "set the wrong incentives" and would be "a burden for countries with solid public finances."

The EU's executive commission — which must draft any reforms to EU law — said there are plans to set out some kind of framework to reinforce economic coordination and surveillance of EU countries by July.

EU spokesman Amadeo Altafaj Tardio said he could not give details because discussions on a proposal are still "premature."

European trade unions said there is a pressing need for some kind of solution to the debt crisis because market speculation is damaging jobs and the region's growth.

Georges Dassis, an official of Greece's GSEE union, said it was "vital to establish a fund in Europe that could be a shield against speculation."