By Axel Bugge and Sergio Goncalves
LISBON (Reuters) – Portugal will propose far-reaching changes to the euro zone next month, including the creation of a European Monetary Fund (EMF) with its own budget to fight crises and economic imbalances in the region, according to a draft proposal.
The proposal marks a departure for Lisbon, which is seeking greater influence in the single currency area after implementing harsh austerity measures and deep economic reforms under an international bailout it took in 2011 to ward off a debt crisis.
“The adjustments by countries like Portugal and Ireland were decisive in reinforcing the principle of European responsibility,” said a spokesman for Prime Minister Pedro Passos Coelho. “Portugal wants equality of opportunities for all European Union members.”
To do that, Passos Coelho will propose at a June EU summit the creation of a self-financing European fund which would take over the management of sovereign bailouts and have a fiscal role to bolster reforms and policies to prevent future crisis.
The EMF’s resources would be raised from capital markets and a possible levy on financial corporations, since the current financing by member states “corrodes the social and political foundations of European integration,” the draft proposal seen by Reuters said.
Bailouts of countries like Greece, Ireland and Portugal prompted charges in richer states that the euro zone was turning into a transfer union for the benefit of weaker countries.
Portugal’s proposal will compete with a joint plan by France and Germany to strengthen the euro zone without changing the EU’s founding treaty. Neighbouring Spain has also made its own proposal, including a common euro zone budget and the issuance of common debt. Debt mutualisation is anathema to Berlin, the euro zone’s main paymaster.
Portugal’s proposal would give the EMF the power to fund shock-absorbing policy instruments to prevent contagion on debt markets and insurance-type mechanisms like a “complement or partial substitute to national unemployment insurance schemes”.
The EMF would incorporate the current euro zone bailout fund – the European Stability Mechanism. The European Central Bank and the IMF would no longer participate in bailout programmes under the Portuguese plan.
“This would have the merit of representing a maturing of the European approach to crises such as these,” the Portuguese paper said. “Finally, it would concur to a unified representation of the euro in international financial diplomacy.”
The head of the EMF would also serve as permanent chairman of the Eurogroup of finance ministers of the 19-nation currency area. That person could be appointed by EU leaders and might also serve simultaneously as a vice-president of the executive European Commission.
“This will yield more executive power to the president of the Eurogroup and ensure greater independence in enforcing fiscal and economic rules as well as in defining common policies,” the document said.
(Reporting By Axel Bugge; Editing by Paul Taylor)