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EUROZONE APPROVES GREECE BAIL OUT
| From : Prasanna Manvi at 05:08 PM - May 08, 2010 ( ) |
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Leaders of the 16 EU member states that use the euro have approved an 110bn euro ($145bn; £95bn) loan to Greece to prevent its debt crisis from spreading.
European Commission President Jose Manuel Barroso said the eurozone would do whatever it took to safeguard Greece's financial stability.
In return for the three-year loan, Athens must cut public spending.
The euro's value has fallen because of fears that countries such as Spain and Portugal could suffer similar problems.
The eurozone leaders also announced proposals for a European Stabilisation Mechanism to preserve financial stability.
'Serious situation'
At a meeting in Brussels on Friday, the eurozone leaders gave their approval to the EU-International Monetary Fund rescue package for Greece, and committed to "accelerate" plans to reduce deficits.
Jose Manuel Barroso European Commission President
They also agreed to tighten EU budget rules, put in place more effective sanctions for breaking debt guidelines, and monitor deficits and competitiveness.
All institutions, including the European Central Bank, would use the "full range of means available to ensure the stability of the euro area", they said in a statement.
"We will defend the euro whatever it takes. We have several instruments at our disposal and we will use them," Mr Barroso told a news conference afterwards.
He declined to give any details of the plans, which will be presented to the finance ministers of all 27 EU member states at a meeting on Sunday, but said it would be done under "existing financial possibilities" in the budget.
The BBC's Jonny Dymond in Brussels says Greece's bail-out is requiring a lot more money than was suggested just a few weeks ago.
The financial assistance being offered is entirely without precedent - the hope is that it will stop the fears of default spreading from one indebted European country to another, our correspondent says.
"[We] are full aware that we face a serious situation in the eurozone. It is about responsibility and it is about solidarity. We will face the situation together," said Herman Van Rompuy, the president of the European Council.
The leaders hope to have the new European Stabilisation Mechanism, which would have up to 70bn euros at its disposal, in place before markets open on Monday to prevent investor fears over Greece spreading to other countries with high deficits, low growth or low competitiveness.
Germany's Chancellor, Angela Merkel, said the mechanism would send a "very clear signal" to market speculators to back off.
She had earlier spoken to US President Barack Obama, who called for a "strong policy response" extending to the international community.
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http://www.bloomberg.com/apps/news?pid=20601087&sid=a4jFzDH.E7uc&pos=1
EU to Set Up Fund to Prevent Spread of Greek Crisis (Update3)
By James G. Neuger and Gregory Viscusi
May 8 (Bloomberg) -- European leaders agreed to set up an emergency fund to halt the spread of Greece’s fiscal woes, seeking to prevent a sovereign debt crisis from shattering confidence in the 11-year-old euro.
Jolted into action by the sliding currency and soaring bond yields in Portugal and Spain, leaders of the 16 euro countries said the workings of the financial backstop will be hammered out before Asian markets open late tomorrow European time.
“We will defend the euro, whatever it takes,” European Commission President Jose Barroso told reporters early today after the leaders met in Brussels.
Europe’s failure to contain Greece’s fiscal crisis triggered a 4.3 percent drop in the euro this week, the biggest weekly decline since October 2008. And it prompted the U.S. and Asia to rally around in a bid to prevent a global sovereign-debt crisis from pitching the world back into a recession.
“Europe is getting its act together,” said Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York. “Time will tell if this statement is enough to satisfy the European bond market vigilantes.”
European officials declined to disclose the size of the stabilization fund, to be made up of money borrowed by the European Union’s central authorities with guarantees by national governments. Finance ministers will meet at 3 p.m. tomorrow in Brussels to flesh out the details. A press briefing is scheduled for 6 p.m.
‘That’s Significant’
“When the markets re-open Monday, we will have in place a mechanism to defend the euro,” French President Nicolas Sarkozy said. “If you don’t think that’s significant, you haven’t been to many EU summits.”
Barroso said he wouldn’t push the independent European Central Bank to, for example, buy government bonds. ECB President Jean-Claude Trichet accelerated the market selloff on May 6 by rejecting that measure.
With the euro facing its stiffest test since its debut in 1999, the summit -- called to discuss efforts to coordinate economic policies -- turned into a crisis-management session that dragged past midnight.
The euro slid to $1.2715 from $1.3293 during the week, and is down 15 percent since late November. European stocks sank the most in 18 months, with the Stoxx Europe 600 Index tumbling 8.8 percent to 237.18.
Surging Spreads
The extra yield that investors demand to hold Greek, Portuguese and Spanish debt instead of benchmark German bonds rose to euro-era highs yesterday. The premium on 10-year government bonds jumped as high as 973 basis points for Greece, 354 basis points for Portugal and 173 basis points for Spain.
Europe came under pressure on a hastily arranged conference call of Group of Seven finance chiefs yesterday. All agreed on “the need for a clear, timely and strong response,” Canadian Finance Minister Jim Flaherty, who chaired the call, told reporters in Ottawa. “We hope to see a strong, early policy response in Europe.”
The spreading contagion also drew the attention of President Barack Obama, who said in Washington that U.S. regulators will examine the “unusual market activity” that on May 6 briefly drove the Dow Jones Industrial Average down by almost 1,000 points, erasing more than $1 trillion in wealth before the market bounced back.
“There are impacts on financial markets, including share markets, from the events in Europe and in Greece more specifically,” said Australian Treasurer Wayne Swan, speaking to reporters in Canberra today. “We are urging as speedy a resolution as is possible in the circumstances.”
Merkel’s Call
In Brussels, German Chancellor Angela Merkel stepped up German calls for a closer monitoring of government finances and more rigorous enforcement of the deficit-limitation rules, originally drafted by Germany in the 1990s.
Europe will send “a very clear signal against those who want to speculate against the euro,” Merkel said.
With the euro region’s overall deficit forecast at 6.6 percent of gross domestic product in 2010 and 6.1 percent in 2011, the vow to bring budget shortfalls back below the euro’s 3 percent limit echoes promises that have been regularly broken ever since governments in 1999 set a three-year deadline for achieving balanced budgets.
Plans for a European credit-rating authority are already under consideration at the EU Commission, the bloc’s Brussels- based executive agency. It also is investigating whether ratings companies such as Standard & Poor’s wield too much power over investors’ perceptions of governments.
Restrictions Considered
Asked whether steps to stem speculation against government bonds would include restrictions on short sales or credit default swaps, Barroso said “some of the points you have mentioned will be contemplated.”
The political leadership of the $12 trillion economy also signed off on a 110 billion-euro ($140 billion) aid package for Greece negotiated by finance ministers last week. So far nine governments have cleared the way for funds to be sent to Athens.
Germany, the biggest contributor with as much as 22.4 billion euros over three years, fell in line yesterday with endorsements in the lower and upper houses of parliament. A group of German academics filed a lawsuit to try to halt the payout. A court today rejected the challenge.
To contact the reporters on this story: James G. Neuger in Brussels at jneuger@bloomberg.net; Gregory Viscusi in Brussels at gviscusi@bloomberg.net
Last Updated: May 8, 2010 05:23 EDT
Respected members please find the link to this news article:
http://news.bbc.co.uk/2/hi/business/8669488.stm
this is a latest article posted @ 01:04 GMT, Saturday, 8 May 2010 02:04 UK
Hello Geeta, hopefully yes, I am confident this will be a positive news, but then you know very well no one can predict these markets. Let us hope for the best, alwa.
Prasanna avre, Will this be a good news for the Markets on Monday?
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