E.U. Details $957 Billion Rescue Package

BRUSSELS — European leaders agreed on Monday to provide a huge rescue package of nearly $1 trillion in a sweeping effort to combat the debt crisis that has engulfed Europe and threatened markets around the world.


In an extraordinary session that lasted into the early morning hours, finance ministers from the European Union agreed on a deal that would provide $560 billion in new loans and $76 billion under an existing lending program. Elena Salgado, the Spanish finance minister, who announced the deal, also said the International Monetary Fund was prepared to give up to $321 billion separately.

Officials are hoping the size of the program — a total of $957 billion — will signal a “shock and awe” commitment that will be viewed in the same vein as the $700 billion package the United States government provided to help its own ailing financial institutions in 2008.

The package was much higher than expected, and represented an audacious step for a bloc that had been criticized for acting tentatively, and without unity, in the face of a mounting crisis.

Underscoring the urgency of the situation, President Obama spoke to the German chancellor, Angela Merkel, and the French president, Nicolas Sarkozy, on Sunday about the need for decisive action to restore investor confidence. And in a sign of the spreading anxiety, the United States Federal Reserve, along with the European Central Bank and the central banks of Canada, Britain and Switzerland, announced the establishment of instruments known as swap lines. The swaps are intended to ease pressure on European banks and money markets by providing more liquidity.

In addition, the European Central Bank announced after the deal was completed that it would intervene in the government and corporate bond markets, also to provide liquidity.

The actions by the United States represented significant concern that the European crisis could spill over and hinder the American recovery.

Stock markets in the Asia-Pacific region rose early on Monday. The leading indexes in Japan and South Korea both rallied about 1.3 percent soon after the deal was confirmed, recouping some of the losses they had suffered last week. The Hang Seng index in Hong Kong gained 1.3 percent soon after the open. In Australia, the benchmark S&P/ASX 200 climbed 2.1 percent.

The markets in Singapore and mainland China also opened higher.

New political complications in two of Europe’s most important countries added to the challenge faced by the finance ministers as they met to find a solution. In Germany, voter anger at the effort to save Greece cost Mrs. Merkel an important regional election Sunday, undermining her leadership, and in Britain the government remained in a state of suspended animation because of the inconclusive Parliamentary elections last week.

Financial unease has been mounting. Riots in Greece, ever-tightening terms of credit and the unexplained free fall in the American stock market last Thursday have compounded the sense that the European Union’s inability to address its sovereign debt crisis might lead to the type of systemic collapse that followed the fall of Lehman Brothers.

The debt crisis began with Greece teetering toward default, and fear quickly spread about other weak economies like Portugal, Spain and even Italy. Previous efforts by the European Union to shore up investor confidence were viewed as too little, too late, with the markets making clear that they were looking for a bolder plan.

Olli Rehn, the European commissioner for monetary policy, described the arrangement as “a consolidation pact” that would be “particularly crucial for countries under speculative attacks in recent weeks.” He specifically mentioned Portugal and Spain.

Mr. Rehn said the I.M.F. would provide “half as much as the European Union” following lengthy talks with fund officials.

“We shall defend the euro whatever it takes,” Mr. Rehn said.

What emerged from the discussions, which covered more than 10 hours, represented a partial retreat from a system discussed earlier in the day that would have radically expanded the powers of the European Commission to raise funds.

Instead the ministers devised a system that would speed up the pace at which states that use the euro could lend to one another, but on a bilateral and voluntary basis.

One of the crucial decisions that ministers made was to create a so-called special purpose vehicle to disburse the $560 billion in new loans, should that support be required by member states in economic difficulties.

The use of such a financial instrument reflected the difficulties that individual European governments — and Germany’s in particular — had in committing huge sums to a central authority. Having a body like the European Commission, Europe’s executive body, oversee the economic management of the bloc was seen by some countries as a clash with national sovereignty.

In a statement after their meeting, the ministers emphasized that the special purpose vehicle would expire after three years and that its use would be strictly dependent on “national constitutional requirements.”

The language most likely reflected the reservations of some governments to providing even more money than is available in bailout packages already approved.

Ministers said their first line of defense against financial turmoil was to employ an existing loan program, which they expanded by $76 billion, and to use the further loans approved Monday as a “complement” as required.

While the sums being discussed are eye-catching, some bankers questioned whether they would be enough to calm the markets over the long term. One banker said that, with more European economies coping with rising deficits, raising, guaranteeing or backing such a large sum would not be an easy task.


But that concern may be addressed by a more forceful posture by the European Central Bank. The bank has rebuffed calls to inject liquidity into the markets by buying back European bonds, but in a statement Monday morning it said it would take whatever steps were necessary to smooth out the secondary markets for public and private debt, suggesting it would have the flexibility to intervene in the markets as needed.

There were many complications in trying to forge a consensus. They included defining the role of Britain, which lies outside the euro zone and had said it would not help in propping up the euro, as well as the European Central Bank. The fractiousness underscores the frailty of a monetary union in which its richest member, Germany, is also the most opposed to a financial rescue.

“The fact that they are worried is clear,” said David Marsh, the author of “The Euro,” a book on the history of monetary union. “But I don’t think that there is enough commitment or economic firepower in Germany to provide the massive loan guarantees to satisfy the markets.”

Predictably, politicians blamed speculators for the market upheaval. The Swedish finance minister, Anders Borg, said immediate action was needed to tackle “herd behaviors in the markets that are really pack behaviors, wolf pack behaviors.” Mr. Borg warned that volatility in markets could “tear the weaker countries apart.”

Since it became clear that Greece would not be able to meet its financial obligations and fears spread that other indebted nations like Spain, Portugal and Ireland would have similar troubles, Europe has responded fitfully.

Even now, despite the lashing rhetoric and the Sunday night meeting, there is still a feeling that Europe should be doing more — notably with regard to freeing the European Central Bank to go against its charter and print money by buying back distressed European bonds from the secondary market.

The meetings on Sunday represented an extraordinary convergence of diplomatic activity, crammed into a tight time frame. Political leaders including Mr. Sarkozy of France said early Saturday, at the end of an earlier summit meeting, that a loan mechanism intended to restore confidence should be ready by Monday morning. That effectively left the European Commission and finance ministers a single weekend to change the way the European Union operates its finances.

Mrs. Merkel of Germany attended a victory parade on Red Square in Moscow on Sunday, a sign of how seriously Germans consider reconciliation with Russia. Mr. Sarkozy and the Italian prime minister, Silvio Berlusconi, opted not to attend, regarding the financial crisis as more urgent.

Mr. Sarkozy held a strategy meeting with ministers on Sunday.

“At stake is the euro and the euro zone,” a French official said. “We need to give a clear signal to markets.”

http://www.nytimes.com/2010/05/10/business/global/10drachma.html?pagewanted=2&src=me

 

wow nice race ... race to see which country/union can issue the biggest rescue package in one deal

 

if only they gave me a very small fraction of that money say 1 millionth of it ... $957,000

 

I think they are thinking that if you could pay just one - billionth of it, just $965.

 

isn't that what the EU citizens are doing?

 

good, let's see how they deploy it, it's time for a test and not for bluff anymore

 

Lets play "who can print the fastest" !!

 

I have about £70 left in the bloody bank, I bet I could do something with this if I time it right, it's just a matter of when.

 

It's not going to work bc EU is not a single country like US

 

Yep, the EU is going to rip itself apart over this, I just want to know when >_<