EU debates emergency cash fund in crisis talks

Crisis talks between the EU's 27 finance ministers began hours before a firewall for the euro before markets reopen in Asia.

EU debates emergency cash fund in crisis talks

Crisis talks between the EU's 27 finance ministers began in Brussels on Sunday, hours from a deadline set by eurozone leaders to create a firewall for the euro before markets reopen in Asia.

Financial markets have been pounding euro zone countries with high deficits or debts as well as low economic growth, threatening to force Portugal, Spain and Ireland into a position where, like Greece, they would need to seek financial aid.

An EU summit on Friday approved 110 billion euros ($147 billion) in emergency EU/IMF loans to Greece over three years to help it over a budget crisis in exchange for austerity measures so sharp that they have already caused violent protests.

Economists estimate that if Portugal, Ireland and Spain eventually come to require similar three-year bailouts, the total cost could be some 500 billion euros.

The European Commission will present the ministers with a proposal on a stabilisation mechanism intended to provide a multi-billion euro safety net for other euro zone countries with bloated public finances such as Portugal, Spain or Ireland.

"Market turmoil"


Bond yields of these countries have been rising sharply -- increasing the risk premium investors carry to hold their debt -- on market concern they may be next to need assistance.

The threat that markets would turn against the three states next triggered a call from euro zone leaders on Friday to come up with a solution to the crisis before markets open on Monday.

"We are going to defend the euro... we have to give more stability to our guarantee," Spanish Economy Minister Elena Salgado told reporters before the Brussels talks.

Ministers of France, Finland and other countries also stressed the need to defend the euro currency.

"I think it is important that we do everything we can to stabilise the markets, to show that we are coming through one of the difficult periods, and that we are prepared to do what is necessary to ensure that we have that stability," British finance minister Alistair Darling told reporters.

"We now see ... wolfpack behaviours, and if we will not stop these packs, even if it is self-inflicted weakness, they will tear the weaker countries apart," Swedish Finance Minister Anders Borg told reporters on arrival for the meeting.

Greece, which had a budget deficit of 13.6-14.1 percent of GDP in 2009 and debt of more than 115 percent of GDP, has already secured a 110 billion euro ($148 bln) three-year loan package from the euro zone and the International Monetary Fund after its costs of borrowing rose to unsustainable levels.

"We ... need resources to stop the market turmoil. If this goes on for more than a couple of days it will be very, very problematic for the recovery," Borg said.

"Stabilisation mechanism with IMF element"

EU sources said the European Commission would ask the finance ministers to extend an existing aid mechanism for non-euro zone countries to nations in the single-currency bloc.

A British diplomat said London would accept this element, provided it set in stone the involvement of the International Monetary Fund, as was the case in those three instances and in a combined 110-billion-euro bailout for Greece.

British Chancellor Alistair Darling said London would not support non-euro countries participating in this element.

The Commission would also call for an existing amount available under the mechanism, called the balance-of-payments facility, to be raised by 60 billion euros, they said.

The maximum available now is 50 billion euros. One source suggested the top-up money could be used to borrow up to 10 times that amount on markets but others said this was incorrect.

The 60 billion top-up would be guaranteed by all 27 EU states and loans paid out to any of them would carry conditions set by the International Monetary Fund, one EU source said.

Funds previously raised via the facility are rated AAA -- top investment grade -- by major credit ratings agencies. As an extra measure for euro zone countries only, the Commission will propose a mechanism of intergovernmental loans, the source said.

A similar mechanism was successfully used in the cases of Latvia, Romania and Hungary after the pool of money available was increased to 50 billion euros last year.

The mechanism could be used on the basis of an EU law which says that if a member state is in difficulties caused by circumstances beyond its control, EU ministers may grant it financial assistance under certain conditions.

The ministers' meeting follows a summit of euro zone leaders on Friday, which asked for a European Stabilisation mechanism to be ready before markets open on Monday. Some economists said the move would cure the symptoms, rather than the disease.

Agencies

Last Mod: 10 Mayıs 2010, 12:37
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