The European Commission was to ask EU finance ministers yesterday to extend an aid mechanism for non-euro zone countries to nations in the single-currency bloc to safeguard euro zone financial stability, EU sources said.
The commission will also ask the extraordinary meeting of ministers to raise the existing amount available under the mechanism, called the balance-of-payments facility, by 60 billion euros (US$80.5 billion).
The maximum available now is 50 billion euros.
EU sources said the 60 billion euro top-up would be used as base capital, or collateral, for borrowing on the markets, which would allow the Commission to raise up to 10 times that amount.
The 60 billion euro top-up would be guaranteed by all 27 members of the EU and the loans, if paid out to an EU member, would carry conditions set by the IMF, one EU source said.
As an additional measure for euro zone countries only, the commission will propose a separate mechanism of intergovernmental loans, the source said.
Ahead of a meeting yesterday to discuss ways of ring-fencing Greece’s debt crisis to stop it spreading to countries like Portugal and Spain, EU finance ministers called for strong action to ensure stability.
“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 stabilize 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 Chancellor of the Exchequer Alistair Darling told reporters.
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 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.
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