Finance ministers met in Brussels on Sunday night to thrash out the details of a "stabilisation mechanism" in time for the opening of markets today.
Europe rushes to save euro from 'wolf pack'
BERLIN // Europe acted urgently to rescue the euro from what it called the "wolf pack" of speculators yesterday, by agreeing to a safety net for indebted euro zone members in a desperate bid to calm markets and stop the Greek deficit crisis from spreading. Finance ministers met in Brussels last night to thrash out the details of a "stabilisation mechanism" in time for the opening of markets today. The measures amount to the biggest reform of Europe's monetary union since its creation 11 years ago.
The plan involves the European Commission borrowing money on financial markets through bond issues guaranteed by euro zone states, and making cash available to member countries in trouble. The euro slumped more than 4 per cent against the dollar last week on doubts that Europe would be able to contain Greece's deficit crisis, even after the EU and the IMF agreed to a €110 billion (Dh515.23bn) bailout to prevent Greece from defaulting.
Speculators have been pounding the stock and bond markets of highly indebted euro zone members Portugal, Greece and Ireland on fears they will be next to call for bailouts. Economists estimate that the total cost of rescuing those three countries would amount to €500bn - a sum that could plunge the entire 16-nation euro zone into a debt crisis. The threat of contagion triggered a pledge from euro zone leaders at a summit on Friday to do whatever it takes to protect the stability of the single currency area, and to come up with a plan before markets opened today.
"We now see … wolf pack behaviours, and if we will not stop these packs, even if it is self-inflicted weakness, they will tear the weaker countries apart," Anders Borg, the Swedish finance minister, said yesterday. The frantic crisis management over the weekend followed months of foot-dragging and indecision by European leaders, especially the German chancellor Angela Merkel, who now faces accusations of having exacerbated the crisis. Under the planned stabilisation mechanism, the EU will shore up market confidence in high-debt countries by offering them limited assistance, hoping this will prevent the need for full bailouts such as the one Greece received.
EU officials said yesterday that existing EU law provides a legal basis for an aid mechanism under which states may grant financial assistance to any nation in the 27-nation bloc that gets into difficulties due to circumstances beyond its control. Under the plans, the EU will enable euro members to make use of an existing aid mechanism that was hitherto confined to non-euro zone countries of the EU.
The amount available under the mechanism would be at least €60bn from the current ceiling of €50bn. EU officials said the €60bn top-up would serve as collateral, allowing the commission to raise up to 10 times that amount. The top-up would be guaranteed by all 27 EU members and the loans would carry conditions set by the IMF. firstname.lastname@example.org