IRELAND COULD be offered euro-zone “solidarity” bonds with austerity measures attached as an alternative to any future International Monetary Fund (IMF) bailout.

Euro-zone countries are exchanging ideas about how best to cushion individual members, in the interest of single-currency stability, if they face financial collapse but without dulling national austerity efforts.

One idea floated in Berlin involves a “bilateral bond” that would allow Ireland or Greece, for instance, to borrow money at rates enjoyed by Germany when it issues government bonds, without having to pay the current risk premium on top.

But that would place a burden on a few economically strong shoulders, raising the alternative of “euro-zone bonds”. The price of joining forces to spread the risk beyond economically strong capitals like Berlin, however, would be a far less attractive interest rate than Germany would be entitled to on its own.

With neither option truly attractive, German officials have reportedly suggested that it could be legally possible for the EU as an entity to take out its own loans on capital markets.

But the possibility of issuing EU bonds to help member states would open up a political can of worms. The most immediate problem is that euro-zone members, let alone the EU 27, cannot agree on whether existing treaties oblige shows of solidarity for member states in difficulties.

However, without agreement on any EU measures the only option facing countries in trouble would be an individual IMF approach, which could be damaging to the image of the euro-zone as a whole.

“It’s quite likely that if such an eventuality occurred – that a country needed help – there would be an interest and willingness to view it as an internal EU matter that can be solved without IMF outsiders crawling all over it,” said one former IMF official who asked for anonymity. “Once the politicians decide they want to do it, there are enough loopholes in the treaties to do it.”

Article 103 of the Maastricht Treaty contains a strict “no bailout rule” for member states – until they experience exceptional difficulties, at which point, Article 100 kicks in. It allows the European Council to agree financial assistance by qualified majority voting when a member state is “is in difficulties or is seriously threatened with severe difficulties caused by natural disasters or exceptional occurrences beyond its control”.

Economic analysts suggest that a smaller EU state, such as Ireland or Greece, could make a plea for euro-zone help to head off a vicious circle, where investor panic about a state’s finances worsen an already weak fiscal situation. “If a self-fulfilling default was preventable through some euro area scheme, bonds would make a lot of sense,” said Dr Alan Ahearne, economist at NUI Galway.

The finance ministry in Berlin denies it is working on concrete plans, but officials admit it would be “negligent” not to think through worst-case scenarios.

There remains concern among experts that, if a euro-zone member faced a financial emergency, the EU apparatus might not be able to react with the same speed as the financial commandos from the IMF.

With that in mind, some analysts have floated the idea of going through Frankfurt. The ECB could buy securities issued by weak governments, they argue. Rather than buying directly from governments, causing yields to collapse, the central bank could go to the market and buy from commercial banks.

“That solution has the merit of ease and speed of operation, with decision-making structures and all the tools necessary,” said the former IMF official.