October 9, 2017 / 5:44 PM / 9 months ago

German position paper calls for broader role for euro zone bailout fund

LUXEMBOURG, Oct 9 (Reuters) - The euro zone bailout fund should play a role in monitoring government fiscal policies and their compliance with EU budget rules and should manage automatic debt restructuring of bailed out governments, a German paper on euro zone reforms said.

The paper, prepared for the discussions of euro zone finance ministers on Monday in Luxembourg, lays out the views of Berlin in a debate on the future of the European Stability Mechanism (ESM) — the lender of last resort to euro zone governments.

Unlike the International Monetary Fund, which is also the lender of last resort for governments around the worlds, the ESM does not have policy monitoring powers before a government is cut off from market borrowing and asks for a rescue programme.

“It is therefore important to expand the ESM’s radar and give it a stronger role in terms of monitoring country risks,” the German paper, seen by Reuters, said.

“The aim is to identify, in cooperation with other institutions, stability risks for and in Eurozone member states more effectively and at an earlier stage than in the past, and to monitor these risks so that they can be reduced by the affected countries themselves,” it said.

“The IMF’s Article IV consultations could serve as a blueprint for this new role,” it said.

But under EU treaties this role is reserved for the European Commission, which polices EU budget rules — the Stability and Growth Pact. It enforces limits on government borrowing and implements disciplining steps for those who break them.

“Fiscal responsibilities and fiscal control belong together, whatever it takes,” the paper said. “The ESM could gradually be given a stronger, neutral role with regard to the monitoring of the Stability and Growth Pact,” it said. (Reporting By Jan Strupczewski)

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