LUXEMBOURG -(Dow Jones)- Any putative new European Monetary Fund would have to reckon without the monetary resources of the European Central Bank, ECB council member Yves Mersch said Thursday.

However, he said that it was for the governments of the 16 countries that use the euro to decide whether they wanted to put their own taxpayers' money into such an institution.

"It shouldn't be forbidden to enhance monetary union with more transfers of sovereignty in other areas, but this is a political decision," Mersch said at a press conference presenting the annual report of the Central Bank of Luxembourg.

"But," he added, "I don't see any place for central bank money to bail out fiscal deficits."

Mersch's comments add new contours to the arguments over whether Europe's monetary union needs a new institution to oversee emergency aid to its weaker members if they should need it.

Initial reactions from the two German representatives on the ECB's 22-strong governing council, ECB executive board member Juergen Stark and Deutsche Bundesbank President Axel Weber, had sounded extremely hostile to anything that risked institutionalizing the process of bailing out EMU members. However, ECB President Jean-Claude Trichet said late Wednesday that the bank doesn't reject the idea outright.

Mersch declined to comment specifically on the possibility that Greece might need such assistance to help refinance over EUR30 billion of debt that is falling due this spring, commenting merely that the plan it has announced to reduce its budget deficit is "courageous" and "goes in the right direction."

As reported, the government of Greek Prime Minister George Papandreou last week announced additional spending cuts and tax increases, after his initial proposals to reduce Greece's budget deficit by four percentage points of gross domestic product this year failed to convince the EU Commission and the other members of the euro zone.

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