With Portugal’s debt in the news Monday morning, reports that the EU Commission is readying a rescue fund appear timely. Moody’s reports that it is concerned about the sovereign debt in Portugal given the difficulties that likely lay ahead on the economic front. But help may be on the way. According to a Reuters report, the EU is considering a rescue fund for the Eurozone countries in order to prevent replays of the situation with Greece.

The concept that seems to be gaining momentum is for the EU to create what is being referred to as a European Monetary Fund. The idea, which comes from Germany’s Finance Minister Wolfgang Schaeuble, is to create a fund akin to the International Monetary Fund with similar executive powers.

EU Commission spokesman Amadeu Altafaj said, "Basically the (European) Commission is ready to propose such a European instrument for assistance which will require the support of all euro area member states."

However, because of the EU’s organizational structure, there are complicating factors that make putting such a plan into action a logistical quagmire. For example, Altafaj said that it is premature to know if this type of fund would require official changes to the EU treaty. If so, it would require a unanimous vote from all 27 EU countries.

At a press briefing Altafaj said, "We are in very open discussions at this point in time, considering ways and means to be more effective both on the intervention side... but also the preventive side."

But unfortunately, the idea may take a while to become a reality as it is not even on the EU’s agenda for discussion at this time.

No Help To Greece

While many questions remain over such a plan, it is clear that a European Monetary Fund would not be the vehicle used to assist Greece with its difficulties. There just isn’t time to get the fund set up in time.

EU Industry Commissioner Antonio Tajani said, "We need to deal with the Greek situation in real time. We need to learn lessons from the crisis in Greece."

So, while the assumption in the market is that there will be an EU-related remedy to the Greece, it is still unclear as to exactly what shape the rescue will take.

The good news is that the IMF’s managing director Dominique Strauss-Kahn says that the crisis with Greece’s debt is unlikely to spread to other Eurozone countries.

" I don't think it will happen," Strauss-Kahn said. "We have a problem with Greece. We don't have a problem with Spain to date. The euro zone has to deal with the Greek problem. They are doing this. No one knows what's going to happen tomorrow morning but there's no reason why the spillover to Portugal or to Spain will take place."

 

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