BERLIN, March 5 (Reuters) - Belgian Prime Minister Yves Leterme proposed on Friday a common finance ministry or debt agency for the euro zone to tackle problems highlighted by Greece’s debt crisis.
Without naming Greece, Leterme wrote in an article published in Financial Times Deutschland that “the latest tensions in the market for European government debt” exposed the problems of a currency union without a common economic government.
Leterme described the European Union’s Stability and Growth Pact, which is supposed to regulate countries’ budget deficits, as a provisional solution.
“I suggest going a step further and founding a common finance ministry or a European debt agency for the euro zone,” he wrote, saying this could be known as the European Debt Agency (EDA).
The EDA would be responsible for the issue and administration of government debt in the euro zone, and would rank below national financial ministries.
“The EDA would take over the existing debt instruments and issue new ones, as far as Ecofin ... and the euro group gave its approval. These means would then be transferred to the member states,” he wrote.
For existing debt, member states would continue to pay varying interest rates corresponding to their credit ratings. When old debt of individual nations matured, it would be replaced by common debt of the euro zone.
“This would imply that every member state would implicitly guarantee the debt of other countries,” he wrote.
Doubts over Greece’s ability to service its debt have led to turbulence on euro zone markets, and provoked fears that investors may lose faith in debt issued by other governments in the bloc which are struggling to control their budget deficits.
European Socialists proposed on Tuesday setting up an emergency fund to prevent defaults by euro zone countries such as Greece that run into trouble, but there has been scant EU appetite for radical institutional reforms. [ID:nLDE62111Q]
Diplomats say Greece might be offered a one-off bail-out scheme, but far-reaching, systemic reforms, such as setting up a “European Monetary Fund” or creating an economic government for the euro zone or the EU, are unlikely.
Editing by Toby Chopra
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