World Business
EU sets up massive euro defense against markets
(Agencies)
Updated: 2010-05-10 11:09
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BRUSSELS: The European Union and the International Monetary Fund pledged a massive nearly $1 trillion defense package for the embattled euro Monday, hoping to finally turn back relentless attacks on the eurozone's weakest members and allow the continent to resume its hesitant economic recovery.
Under the three-year aid plan, the EU Commission will make 60 billion euros ($75 billion) available while countries from the 16-nation eurozone would promise bilateral backing for 440 billion euros ($570 billion). The IMF would contribute an additional sum of at least half of the EU's total contribution, or 250 billion euros, Spanish Finance Minister Elena Salgado said.
"We shall defend the euro whatever it takes," EU Commissioner Olli Rehn said after an 11 hour-meeting of EU finance ministers. The meeting capped a hectic week of chaotic sparring between panicked European governments and aggressive markets.
The massive sums come after a week of political posturing and soothing words by euro zone leaders that had no impact on global investors. In the end, even longtime skeptic Germany realized Europe had to show the money after financial attacks on Greece's debt seemed poised to spread to Portugal and Spain.
"We are placing considerable sums in the interest of stability in Europe," Salgado said after the meeting.
The talks were called on Friday night after a eurozone summit in Brussels amid concerns that the financial crisis sparked by Greece's runaway debt problems had begun to spread to other financially troubled eurozone countries such as Portugal and Spain.
"We are facing such exceptional circumstances today and the mechanism will stay in place as long as needed to safeguard financial stability," the ministers said in a statement.
Spain and Portugal, which have begun to see the same signs of trouble that Greece had three months ago, have committed to "take significant additional consolidation measures in 2010 and 2011," the statement said, and the two countries will present them to the EU's finance ministers at their meeting on May 18.
The EU's slow response to the crisis and its failure to keep Greece from reaching the brink of bankruptcy triggered slides in the euro and global stocks last week, and intensified fears the crisis would spread.
Ministers had hoped to have something approved by the time stock markets opened Monday in Asia, but they missed their deadline by a couple of hours.
"We need to make progress today because in the night, when the markets are opening, we cannot afford disappointments," Swedish Finance Minister Anders Borg said as he headed into the meeting Sunday afternoon.
"We now see herd behaviors in the markets that are really pack behaviors, wolf pack behaviors," he said. If unchecked, "they will tear the weaker countries apart. So it is very important that we now make progress."
Some eurozone nations blamed the fragile governments and a lack of European cooperation for the crisis.
"I'm against putting all the blame on speculation," said Austrian Finance Minister Josef Proell. "Speculation is only successful against countries that have mismanaged their finances for years."
Compounding the Greek financial crisis, attention has centered on fragile finances of countries like Spain and Portugal, which in turn could drag the whole of the euro zone down. Fear of default led to investors demanding high interest rates that Greece could not pay, forcing it to seek a bailout; the risk is that market skepticism will make Portugal and Spain pay more and more to borrow, worsening their plight.
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Financial markets have continued to sell off the euro and Greek bonds even as EU leaders have insisted for days that the Greek financial implosion is a unique combination of bad management, free spending and statistical cheating that doesn't apply to other euro-zone nations.
Many economists think Greece will eventually default anyway, which could deal a sharp blow to the euro and lead to sharply higher borrowing costs for other indebted countries in Europe. Default, or market contagion to other countries could lead to panic, intimidating consumers from spending and making banks fearful to lend money to businesses and consumers.
