Monday, May 10, 2010
ATHENS -- European finance ministers threw a trillion-dollar protective wall around the euro on Sunday, approving an emergency loan program meant to ensure than no other governments come under the same market assault that nearly pushed Greece to a default.
The program will be jointly created with the International Monetary Fund and was met with an initial vote of confidence as Asian markets stopped a recent slide and gained in early trading. The euro also strengthened against the yen.
The aim was to have a program in place before a new trading week opened in Asia and to stop a crisis over government debt from spreading outside Greece and possibly undermining Europe's economic recovery. A slide on global stock markets and a drop in the value of the euro last week raised fears that a "contagion" was already spreading.
The very debate marks a dramatic turnaround. European finance and political officials took months to negotiate over a $144 billion bailout package to keep heavily indebted Greece from defaulting on its loans. Meanwhile, confidence slipped in other European governments and put the 16-nation bloc that shares the euro under threat.
On Friday, as they gave final approval to aid for Greece, European heads of state also said a larger effort to support the euro was needed, and set their finance ministers to work developing a program over the weekend. After extensive debates over how much Greece might need, money now appears to be no object: wire service reports from Brussels, quoting European officials, put the potential value of the euro stabilization fund at in excess of $600 billion, an amount reminiscent of the Troubled Assets Relief Program set up in the United States to uphold confidence in the banking system.
"We are going to defend the euro," Spanish Finance Minister Elena Salgado told reporters as she prepared to chair the session. "We have to give more stability to our currency . . . We will do whatever is necessary."
The emergency measures in Brussels came as the International Monetary Fund gave final approval to a rescue package for Greece, the country whose massive government debt and potential to default raised doubts about the ability of other European governments to pay their bills.
Combined, the two programs are meant to assure investors that European governments are financially stable, and that the euro nations will collectively stand behind the currency. Ministers from the larger, 27-member European Union were also a part of the debate over the support program, though the main focus is on supporting the value of the euro, and the funding will come mostly from the 16 countries that use the common currency.
The fund will support governments that come under the type of market pressure that pushed Greece to the brink of default. A stock market sell-off last week and a continued slide in the value of the euro created a sense of urgency, perhaps the sternest test yet of the ability of the euro nations to coordinate policy despite wide economic differences.
As President Obama lobbied European leaders to take what a White House statement described as "resolute action" to protect an evolving economic recovery, Europe's response to the crisis in Greece continued to roil regional politics.
German Chancellor Angela Merkel's ruling party appeared headed for defeat in regional elections that were turning, in part, on her support of emergency loans for Greece. British leaders continued sorting through the results of an election that produced no clear winner but may lead to the ouster of the Labor Party government of Prime Minister Gordon Brown.
Emotions remain high in the Greek capital. What was advertised as a vigil for three bank employees killed in an Athens firebombing last week turned into a haranguing denouncement of government cuts and the "foreign occupation" by the IMF.
The action in Brussels aimed to stanch the damage caused by high government debt and poor economic performance in Greece and several of Europe's weaker economies.
Spain and Portugal are of immediate concern, but Italy and Ireland may be vulnerable as well. By guaranteeing a market for the debt of countries that use the euro, the program is meant to keep interest rates at reasonable levels and halt what has been a steady decline in the euro's value as Greece's problems intensified.
In Washington, the IMF executive board approved a three-year, $145 billion program of emergency loans for Greece, with most of the money coming from the other 15 nations that share the euro as a currency.
The program is one of the IMF's most extensive ever, but fund officials said it was warranted by both the risks Greece posed to the economic recovery and the aggressive steps Greek officials have been willing to take to right the country's finances.
The Greek program includes tax increases, public-employee benefit cuts and an array of other measures. Despite violent protests, the Greek Parliament approved the program last week, and local opinion polls indicate that a majority of Greeks support the effort to balance the government budget and make the economy more competitive in Europe.
About $26 billion will be available immediately, enough for Greece to make a large debt payment this month. Overall, it is meant to give Greece three years of "breathing room" to balance its budget and restructure its economy without having to borrow on the open market.
The Greek program will "help underpin recovery and contribute to global stability," John Lipsky, deputy managing director of the IMF, said after the board's unanimous approval.
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