Source: BBC

The European Commission has confirmed that it may set up a version of the International Monetary Fund to bolster the eurozone's financial stability.

Germany and France are leading the move, part of a series of initiatives aimed at avoiding a repeat of the sort of financial crisis engulfing Greece.

The German Chancellor Angela Merkel has expressed cautious support for the plan.

France and Germany have resisted IMF involvement in Greece's financial woes.

The IMF monitors the economic policies of member countries and can provide financial aid in the event of a crisis.

Ms Merkel called a European version of the IMF "a good and interesting idea", but warned that a new European treaty may be necessary to create it, and help prevent a repeat of the Greek crisis.

"We don't want to get back into such a situation, but our instruments are not adequate to deal with such a situation," she said.

BBC economics correspondent Andrew Walker said that although the idea of a European Monetary Fund (EMF) had been prompted by the problems in Greece, it could not be up and running soon enough to deal with that problem.

German Finance Minister Wolfgang Schaeuble said at the weekend that "for the internal stability of the eurozone, we need an institution that has the experience and power of the IMF".

Austerity plan

Economic and Monetary Affairs Commissioner Olli Rehn will inform the full commission executive on Tuesday about the talks on the EMF plan, said his spokesman, Amadeu Altafaj Tardio.

Mr Tardio also said that things were "happening quickly". "We are in discussion with the countries of the eurozone," he said.

Full details of the EMF, and how the 16 members of the eurozone would fund it, might be ready by early June, he added.

Weighed down by a deficit more than four times the EU's limit, Greece has initiated a number of austerity measures, including sweeping tax rises and deep cuts in public spending.

The emergency action has sparked protests and nationwide strikes that have affected air and ground transport, as well as schools and hospitals.

It has also highlighted differences in the 27-nation EU between the euro countries and those that have retained their own national currencies.

Countries outside the euro have greater leeway in managing their finances as they can devalue their money if they so wish to help balance their books.

French President Nicolas Sarkozy met Greek Prime Minister George Papandreou in Paris on Sunday to discuss Greece's austerity package.

The meeting came amid growing belief that France and Germany will provide some sort of financial guarantee for the Greek economy.