European Socialists proposed on Tuesday setting up an emergency fund to prevent defaults by euro zone countries such as Greece that run into trouble and ward off a "locust swarm of speculators".
The fund would be part of the European Investment Bank (EIB), the European Union's government-owned financing arm which issues bonds to secure cash for projects such as energy or motorway construction.
"The current crisis has revealed the lack of a solidarity mechanism in the EU," said Poul Nyrup Rasmussen, a former Danish prime minister who is head of the Party of European Socialists, an umbrella for left-wing parties.
"The fund would allow countries in need to borrow at normal rates. We cannot accept it that we just leave it to the markets to regulate living standards."
The group's statement said the fund would stop a "locust swarm of speculators moving from country to country".
The proposal follows reports that France and Germany could be nearing a deal with Greece to help it refinance its ballooning debt in exchange for further commitment from Athens to budget deficit-cutting reforms.
It remains unclear whether the executive European Commission and EU leaders would take up the proposal, as it effectively amounts to issuing common EU or euro zone bonds — an idea which has gathered little enthusiasm in most EU countries.
Rasmussen said the proposal was unlikely to help Greece as, if accepted by EU and euro zone governments, it would take time for it to be agreed and put in place.
EXCEPTIONAL CIRCUMSTANCES?
The EU can give financial help to its non-euro zone members through a balance of payments fund, but has no ready instrument to back euro zone countries that are in trouble.
Rasmussen said the fund could be created under a provision of the EU's Lisbon treaty that allows aid for countries "seriously threatened with severe difficulties caused by natural disasters or exceptional circumstances beyond its control".
The very existence of such a fund could calm markets enough for the money never to be used, said a Greek member of the European Parliament, Stavros Lambrinidis.
"It is like in a Western we need to put a gun on the table, it does not mean we need to use it," Lambrinidis told the news conference.
Rasmussen said the fund could be created within the EIB and raise money cheaply on markets by issuing bonds using its high credit rating, as the bank does now.
It could then lend the cash to the country in need.
He said the European Commission, the EU executive, should come up with a more detailed proposal on how to put such a plan in place.
The plan would require a change in the statute of the European Investment Bank, which is owned by EU governments, because under current rules it cannot take part in bailouts designed to help EU members to weather budget deficit or balance of payments problems.
