European nations scrambled yesterday to build a crisis fund big enough to satisfy markets and contain a post-Greece “state of emergency” engulfing the entire eurozone.
After leaders of the 16 euro currency countries ordered that a new fighting fund be ready for trading tomorrow, finance ministers from the 27 EU members are expected to fix its scope and scale at emergency talks today.
A chain of debt running through continental Europe sent shares tumbling across the globe last week, with banks now in the firing line amid growing fears that European governments will be unable to keep up repayments. It comes as governments ready to commit billions of euros in loans for debt-laden Greece, which triggered a crisis that experts warn echoes the US sub-prime mortgage collapse and may jeopardize the global economic recovery.
“Between now and Sunday night we will have a watertight line of defense in the eurozone,” euro finance chief Jean-Claude Juncker said in the early hours of yesterday, as EU officials worked to mobilize “all available means.”
Having also agreed to impose new curbs on speculators blamed for sustained and deliberate attacks, German Chancellor Angela Merkel said that the “stabilization” fund would send “a very clear signal” to markets to back off.
While bailouts are banned by EU treaties, Brussels is planning to use powers in “exceptional circumstances” that previously allowed it to help non-euro members, such as Hungary, Latvia and Romania, by borrowing on the bond market.
Sources said 70 billion euros (US$90 billion) could be raised in this way, while European Central Bank president Jean-Claude Trichet is not ruling out a so-called “nuclear option,” introducing emergency provisions for the buying of government debt, Italian Prime Minister Silvio Berlusconi said.
The sweeping decisions came after the US, Japan and Canada relayed their growing concerns.
US President Barack Obama himself spoke with Merkel and called for a “strong policy response” extending to the wider “international community.”
That came after stocks plummeted in Asia and on Wall Street, while the euro plumbed to a 14-month low against the US dollar.
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