Europe Economy

Europe's Red Tape Snarls Rescue Fund Idea

Carolina Cimenti|CNBC Reporter

The European Monetary Fund isn't a formal proposal and it's already creating controvery among European Union leaders.

One day after the European Commission announced it is considering a new rescue fund for euro-zone countries, the bloc is divided on how possible this project actually is. The idea to create an EMF is raising questions regarding what king of bureaucracy will be needed to make it possible.

German Chancellor Angela Merkel said Tuesday that these plans would require a new treaty and the agreement of all European Union member states.

"It leaves lots of questions open, but I find the idea good and interesting," Merkel said. "But, of course, we are going to have to ask ourselves who will pay into it, how independent it will be from the European Commission. Without treaty changes we can't form such a fund."

The reason behind the need for a treaty change is the EU's "no bailout" rule, which says that: the Union shall not be liable for or assume the commitments of central governments.

And since the German Constitutional Court will be paying a lot of attention to any decision that could possibly breach the Lisbon Treaty, Merkel is right to stay grounded while some politicians in Europe already dream the EMF will solve all of their problems.

'Impossible' to Do in Less than a Year

"The problem of Angela Merkel, and ultimately of Europe, is that the Constitutional Court is not flexible," a German official explained. "It approved the Lisbon treaty just five months ago, and now anything that doesn't respect the treaty will be seen as a change in the rules, which will require all the procedures we've seen in the past years, to put the Treaty in place."

The procedures he's talking about are the 27 ratifications in the EU national parliaments, plus the OK of the European Parliament and the signature of all European heads of state.

"The Lisbon Treaty took eight years to get ready, a change in the Treaty could be slightly quicker, but don't expect anything for the next 12 months. It's just impossible to be done like that," the official said.

But Merkel insisted that the EU should not be put off by the prospect of further treaty negotiations.

"We want to be able to solve our problems in the future without the IMF," she said.

The trouble with a possible creation of the EMF doesn't finish here. French President Nicolas Sarkozy doesn't seem very keen on creating this discussion or opening the possibility of a Treaty change.

And Jürgen Stark, Germany’s representative on the executive board of the European Central Bank, condemned the idea as well, writing in the German paper Handelsblatt that "instead of a European monetary fund, budget rules must be strengthened and implemented with the help of a stringent supervisory mechanism."

The European Commission said that there's no proposal or draft for the creation of the EMF yet, so there's absolutely no change to be made in the treaty at the moment.