European Union finance ministers early Monday agreed to a $645 billion package to defend embattled states like Spain and Portugal with the goal of creating enough firepower to discourage further speculation in financial markets against the eurozone’s weaker members.
Rushing to finalize an agreement before Asian markets officially opened Monday, the ministers agreed to a three-year aid plan with the EU Commission contributing $75 billion and countries from the 16-nation eurozone and the International Monetary Fund contributing a combined $570 billion in bilateral loans and guarantees.
The U.S. Federal Reserve contributed to the massive European effort by making U.S. dollars available in swap arrangements with the European Central Bank to address a shortage of dollars that developed during the market crisis last week. The banks of England, Japan and other foreign central banks were also offering support to the EU program.
The Fed’s move essentially reopens an emergency program it set up during the 2008 financial crisis to ease strains in financial markets. The Fed said it is in “response to the re-emergence of strains,” particularly in European markets.
“We are placing considerable sums in the interest of stability in Europe,” said Spanish Finance Minister Elena Salgado, after an emergency meeting of the European Union’s finance ministers in Brussels.
Both heavily indebted member states and the euro have come under increasing pressure since the financial meltdown of one of its members, Greece. The EU’s monetary affairs commissioner, Olli Rehn, said the agreement “proves that we shall defend the euro, whatever it takes.”
Spain and Portugal, which have begun to see the same signs of trouble that Greece had three months ago, have committed to “take significant additional consolidation measures in 2010 and 2011,” the statement said, and the two countries will present them to the EU’s finance ministers at their meeting on May 18.
Meanwhile Sunday in Washington, the International Monetary Fund put up nearly $40 billion to help bail out Greece and appease investors’ fears of a spreading European debt crisis. The IMF’s executive board met Sunday to approve the three-year loan for the debt-plagued nation, part of a $140 billion package negotiated with other eurozone countries. European leaders approved their $100 billion package of loans Saturday,
With hundreds of billions in debts and a budget deficit of 13.6 percent of gross domestic product, Greece was just weeks away from default when eurozone finance ministers agreed to activate a rescue.
Greece will have access to about $7.1 billion from the IMF on Wednesday, and will be able to tap a total of about $51.5 billion in combined IMF and EU funds this year. Athens needed to see the first installment of loans before it pays out about $11 billion on 10-year bonds that come due on May 19.
Together, the IMF and EU bailouts give Greece enough money to avoid having to raise private funds for two years, IMF officials said. By that time, Greece it is hoped will be strong enough economically to borrow through private debt markets, IMF Deputy Managing Director John Lipsky said in a call with reporters Sunday.
• Patrice Hill contributed to this report.
Please read our comment policy before commenting.