Portugal would support debt mutualization for the euro zone in the long term and the issuance of eurobonds that are jointly guaranteed by all members to support weaker economies, Portugese Prime Minister Pedro Passos Coelho said.
Passos Coelho said in an interview late on Friday that debt mutualization could follow the creation of a European Monetary Fund (EMF) to bail out distressed economies in the eurozone, something that he has proposed.
The last stage of beefing up the eurozone’s architecture should be the creation of an independent treasury with its own budget to be able to defend the currency area against shocks, eventually dispensing with the European Central Bank and IMF in bailouts, Passos Coelho said.
Debt mutualization has been on the eurozone’s agenda for some time as leaders look for ways to strengthen the currency in the wake of Europe’s debt crisis. By mutualizing debt, the eurozone would create a “risk-free” interest rate to enable the struggling economies to put their public finances on a sound footing.
Passos Coelho said there could be a “kind of European treasury” which could lead to the mutualization of a part of European government debt, such as up to 60 percent of GDP, or debts exceeding that percentage.
“These are two ideas that are normally presented together with the issuance of Eurobonds,” he said. “Either of the solutions do not seem impossible to me in the long term.”
European leaders are due to discuss changes to the eurozone at a summit this week and Passos Coelho said his government had exchanged ideas on the plan with some other governments, including Italy, receiving tentative support.
However, debt mutualization remains anathema to Berlin, the eurozone’s leading economic and political power.
Portugal’s proposal will compete with a joint proposal by France and Germany which involves strengthening the eurozone without changing the EU’s founding treaty.
The Portuguese prime minister called for the discussion on the changes to the eurozone structure to go ahead despite the dire situation in Greece.
He also said an EMF should be funded from a tax on financial transactions.
“There are many ways for the eurozone to raise its own funding,” Passos Coelho said. “One of them is a tax on financial transactions, but there may be others.”
Portugal received a bailout from the EU and IMF during Europe’s debt crisis. It exited the rescue program last year after harsh austerity and returned to growth after three years of recession.
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