ECB economist rejects idea of a 'European IMF': report

(FRANKFURT) - The European Central Bank's head economist took aim Monday at a proposal to create a "European IMF" that would come to the aid of heavily indebted countries like Greece.

"Such a mechanism would not be consistent with the founding principles of the monetary union" to which Greece belongs, Juergen Stark told the financial daily Handelsblatt in comments to appear on Tuesday but released in advance.

The International Monetary Fund (IMF) has the financial clout and experience to step in and help indebted countries but has been held at arm's length by eurozone leaders like French President Nicolas Sarkozy and ECB President Jean-Claude Trichet.

In Brussels, a European Commission official said Monday it would float a proposal within 24 hours to "reinforce economic coordination and country surveillance" across the 16 nations that share the euro, which most observers felt would in essence create a European version of the IMF.

Over the weekend, German Finance Minister Wolfgang Schaeuble told the Welt am Sonntag newspaper that "for the internal stability of the eurozone, we need an institution that has the experience and power of the IMF."

For Stark however: "It would be the start of a European financial scheme that could be very expensive, create the wrong incentives and finally, burden countries with more solid public finances."

Countries with "lax budget policies" would not change their behaviour, the ECB economist warned, which could undermine public confidence in the euro, the report said.