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The European Commission and the EU's biggest economy, Germany, are planning to create a "European IMF" that could rescue debt-ridden countries like Greece, officials said on Monday.

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"The (European) Commission is ready to propose a European instrument like this that would have the support of eurozone members," the EU's Economic and Monetary Affairs Commissioner Olli Rehn told the Financial Times Deutschland.

Rehn emphasised the financial aid would be linked to "strict conditions."

"We are working closely on this issue with Germany, France and other EU member states," he added in the interview.

Italian President Giorgio Napolitano and German Finance Minister Wolfgang Schäuble have also suggested the creation of a European version of the Washington-based International Monetary Fund.

The IMF gives out emergency loans to countries with troubled finances.

"We're not planning an institution that would compete with the IMF, but for the internal stability of the eurozone, we need an institution that has the experience and power of the IMF," Schäuble told the Welt am Sonntag newspaper.

"We should calmly discuss the consequences of the Greece crisis and should not rule anything out, even the creation of a European Monetary Fund," he said.

"I will shortly be making proposals on this topic," added the minister.

Weighed down by a deficit over four times the EU's limit, Greece has initiated a raft of austerity measures, including sweeping tax hikes 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.

On an international level, the crisis has weighed heavily on the value of the common currency, the euro, and on the financial markets.

Napolitano called for the creation of a European monetary fund to help eurozone nations in trouble during a visit to Brussels last week.

"The European Central Bank (and) the European institutions are aware that there's something missing from our common tool box to tackle unforeseen and serious crises in one of the eurozone nations," he said.

Socialists in the European Parliament have also called for the creation of such a fund to be managed by the European Investment Bank (EIB).

Under their scheme the EIB, Europe's lending arm, would borrow from the market at a reasonable interest rate. Countries in crisis could then borrow these funds at a similar rate as others are able to do.

Such a system would protect the eurozone against speculative attacks and create conditions in which a sovereign default by any eurozone member state "is clearly judged impossible by the markets," the European Socialists said.

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