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Business

Germany Mulls Euro Zone Aid for Weaker Members

The German government said on Friday it was considering ways in which economically strong euro zone countries could help weaker ones in the bloc ride out the global financial crisis.

A one euro coin

Some of the 16 nations sharing the euro have seen their finances deteriorate sharply during the global crisis

German officials confirmed on Friday, Feb 20, they were mulling ways to help shore up economies of economically weak euro zone members but emphasized that no concrete rescue plans had been agreed on.

"Especially an economy like the German one obviously relies on the economy of its neighboring states and neighboring markets not suffering too much," German Foreign Minister Frank-Walter Steinmeier said. "That's why a process is now starting to consider to what extent support via ... the economically strong countries of the euro zone countries can happen," he said.

Germany calls for coordinated effort

His comments come amid reports of a widening of bond yield spreads as euro countries borrow millions to protect their economies from the global financial crisis.

"In light of widening interest rates for state borrowing in the euro zone, a common approach by the European Union, the European Central Bank and the Eurogroup is needed to discuss measures with countries involved to resolve the trend," the German finance ministry said in a statement.

A yield spread is effectively a way of comparing any two financial products and the risk involved in investing in one product over the other.

Financially weaker euro zone members such as Greece and Ireland have had to pay higher interest rates on sovereign bonds because of greater fears their troubled economies could falter and lead to a default on payments. Stronger euro zone states such as Germany have benefited from lower sovereign bond interest rates reflecting the relative safety of their economies.

This widening of bond yield spreads has raised alarm bells over rising budget deficits among financially weaker EU member states.

Euro zone concerns to overshadow summit

German Finance Minister Peer Steinbrueck said in a speech this week that all euro zone members would have to pitch in to help troubled euro zone countries "if it came to a serious situation," though EU rules state that countries within the currency area should not directly help one another.

German magazine Der Spiegel reported on Friday that the German finance ministry was studying the possibility of credit-worthy euro countries issuing a "bilateral bond" on behalf of another state in need.

It said it was also mulling whether bigger EU countries could issue a joint bond or the possibility of an EU rescue package.

The German finance ministry however denied the report.

Concerns over the worsening economic situation in some euro zone countries and the financial stability of some eastern European nations are likely to figure on the agenda at a summit hosted by German Chancellor Angela Merkel on Sunday.

The meeting will be attended by the leaders of Britain, France, Italy, Spain, the Netherlands, Czech Republic and Luxembourg, as well as top European central bankers. It's meant to prepare the ground and develop a common European position on restructuring global financial rules ahead of a G20 summit in London on April 2.

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