Euro zone can bail out members if needed: Almunia

By Jan Strupczewski and Marcin Grajewski

BRUSSELS (Reuters) - The euro zone has a way of bailing out its members if they face a crisis before they have to seek help from the International Monetary Fund, 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, declining to give details.

"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.

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 do I know? A number that is bigger than last year," he said.

German Foreign Minister Frank-Walter Steinmeier also said on February 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.

"There are risks in the banks. The importance of foreign- owned banks is high and the assets of these subsidiaries of foreign banks are being impaired to some extent by the crisis," Almunia said.