* EU ministers vow to do all possible to defend euro * EU set to approve stabilisation mechanism for euro zone BRUSSELS, May 9 (Reuters) - European Union finance ministers said on Sunday they would do everything possible to defend the euro before starting talks on emergency measures to stop Greece's debt crisis spreading to other countries. The European Commission will present the ministers with a proposal on a stabilisation mechanism intended to provide a safety net for other euro zone countries with bloated public finances and low growth such as Portugal, Spain or Ireland. Bond yields of these countries have been rising sharply -- increasing the risk premium investors pay to hold their debt -- on market concern they may be next to need assistance. Greece has already secured a 110 billion euro ($147.6 billion) three-year emergency loan package from the euro zone and the International Monetary Fund. "We are going to defend the euro... we have to give more stability to our guarantee," Spanish Economy Minister Elena Salgado told reporters as she arrived for the talks in Brussels. EU sources said the Commission proposal that the ministers would discuss would extend the European Union's balance of payments facility, now reserved for non-euro zone countries with current account problems, to euro zone members as well. Under such a mechanism, the European Union's executive arm, the European Commission, would raise money on the markets using its AAA rating and lend it to the euro zone country in need, perhaps together with the IMF under strict conditions. The bonds would be guaranteed by euro zone countries. A similar mechanism has already been 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 of the 27-nation bloc is in difficulties caused by circumstances beyond its control, EU ministers may, under certain conditions, grant it financial assistance. "The situation in the financial markets has gone in a very bad direction, even though the Greek situation was brought under control," Finnish Finance Minister Jyrki Katainen told a news conference in Helsinki. "Now we have to do everything we can to bring stability in time," he said. 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 was welcome news, but it would cure the symptoms, rather than the disease. "By putting in place additional safeguards for the euro area financial system, governments finally appear to be rising to the challenge of the sovereign debt crisis," Morgan Stanley said in a research note to clients. "But, like the measures taken before - for the benefit of Greece - a stabilisation fund is just buying time for distressed borrowers," the bank said. It added: "The fiscal policy action taken in these countries during this "extra time" is essential. If yet another rescue mechanism isn't followed by aggressive austerity measures, the problem just continues to fester - and could eventually spread even wider." Euro zone leaders vowed on Friday to accelerate their fiscal consolidation programmes to make sure they meet targets set by EU finance ministers this year and in the coming yearsEU to defend euro with stabilisation plan
Monday, 10 May 2010
Posts
