(Updates with more Almunia, Steinbrueck comments)
By Jan Strupczewski and Marcin Grajewski
BRUSSELS, March 3 The euro zone has a way of
bailing out its members if they face a crisis before they have
to seek IMF help, but this must remain confidential, European
Monetary Affairs Commissioner Joaquin Almunia said on Tuesday.
Although no bailout possibility existed under European Union
laws for euro zone countries, there was a solution that could be
used, Almunia told a seminar.
"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," he said.
"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," he said.
Speaking at a later event in the European Parliament,
Almunia said the euro zone was probably experiencing the worst
moments of the economic crisis in the current months.
"We are living in those months in the worst period of the
crisis," he said. "I hope in few months we can consider the
worst of the recession is behind us."
German Finance Minister Peer Steinbrueck said in February
that although EU rules said countries should not help each other
within the currency area, all members of the bloc would have to
help "if it came to a serious situation".
In the same speech he mentioned Ireland as being in a "very
difficult situation". Other euro zone countries such as Greece
have seen their bond spreads over Germany widen, reflecting
worries about rising budget deficits and sparking market
speculation about the possible break-up of the euro zone.
Almunia repeated no such option existed. "The probability of
this happening is zero. Who is crazy enough to leave the euro
area? Nobody. How many candidates to join the euro area I know?
A number that is bigger than last year," he said.
German Foreign Minister Frank-Walter Steinmeier also said on
Feb. 20 that a process had begun to consider how financially
strong euro zone nations could help weaker members, though it
was too early to say what measures might be taken.
The chairman of euro zone finance ministers, Jean-Claude
Juncker, had proposed issuing a common euro zone bond for the 16
countries sharing the currency, but this idea was shot down by
Germany. France and the Netherlands are also reluctant.
Almunia repeated he believed a common bond would be good.
"I would say: yes, it is reasonable. As a politician I know
that it is not politically viable today because some important
member states said 'no'. This requires a political decision that
is not in the hands of the Commission," he said.
EASTERN EUROPEAN BANKS
Responding to concerns about eastern Europe resulting from
the crisis-induced sharp depreciations of local currencies in
which people pay back loans taken in euros or Swiss francs,
Almunia stressed each country was in a different situation.
He also said that because the banking sector in eastern
Europe was dominated by western banks, the parent banks should
make sure their eastern European subsidiaries could operate.
"They did not have toxic assets but now, with the recession,
it is happening," he said. "Who has to recapitalise, if needed,
those banks? Indeed their home banks, their parent banks."
Steinbrueck said in Paris that Germany and France backed
moves to boost the IMF's ability to help those hit by the global
Speaking after a meeting of Franco-German economic leaders,
Steinbrueck welcomed the recent accord by the European
Investment Bank, the World Bank and the European Bank for
Reconstruction and Development to provide 24.5 billion euros
($31 billion) in support for eastern European banks.
He noted that Germany and France had declared at a summit on
Sunday that further financial help for the region could not be
funded at the moment but that further support would be welcome.
INFLATION, BUDGETS AND FX
Speaking just two days before the European Central Bank
meets on interest rates amid market expectations of a 50 basis
point cut to 1.5 percent, Almunia said inflation expectations in
the euro zone were well anchored at the ECB target.
Almunia said there was a longer-term inflation risk from the
billions of euros of extra fiscal stimulus that euro zone
countries have mobilised to fight the recession.
"We face ... a risk of inflation provided that the
consequences of fiscal stimuli are not withdrawn. It is
difficult to withdraw excess liquidity in the boom and to fiscal
excesses when the recession is be over," Almunia said.
He said it was important for governments to formulate an
exit strategy of returning to sustainable public finances in
order to boost consumer confidence.
Asked if such an exit strategy should contain concrete dates
and what they should be, Almunia said that the Commission will
suggest such dates later in March in recommendations on when
countries running excessive deficits should bring them back in
line with the EU's ceiling of 3 percent of GDP.
He also said the euro exchange rate against the dollar in
the range of $1.2-$1.3 was considered normal and that the
current euro/dollar exchange rate was "quite correct".
(Additional reporting by James Mackenzie in Paris; Editing by