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Brussels - The European Union and the International Monetary Fund have pledged nearly $1 trillion to defend the embattled euro, hoping to turn back relentless attacks on the eurozone's weakest nations and allow the continent to resume its hesitant economic recovery.
Central banks around the world joined the coordinated effort to prevent Europe's debt crisis from derailing the global economy's rebound from recession. The US Federal Reserve reopened a program to ship billions of US dollars overseas in a bid to pump more short-term cash into the financial system and make sure banks have the dollars they need.
Other central banks, including the Bank of Canada, the Bank of England, the European Central Bank, the Swiss National Bank, and the Bank of Japan also are involved in the temporary dollar swap plan. Separately, the ECB jumped into the bond market, saying it is ready to buy eurozone bonds to shore up liquidity in "dysfunctional" markets.
Under the three-year plan, the EU Commission will €60bn available while countries from the 16-nation eurozone would promise backing for €440bn. The IMF would contribute an additional sum of at least half of the EU's total contribution, or €250bn.
"We shall defend the euro whatever it takes," EU Commissioner Olli Rehn said after an 11 hour-meeting of EU finance ministers that capped a hectic week of chaotic sparring between panicked governments and aggressive markets.
Officials hope the massive sums will deter currency speculators from betting on a euro collapse after political posturing and soothing words failed to convince investors that Greece's financial implosion could be contained.
Markets had battered the euro and Greek government bonds even as EU leaders insisted for days that Greece's problems were a unique combination of bad management, free spending and statistical cheating that doesn't apply to other euro-zone nations.
In the end, even longtime skeptic Germany realized Europe had to show the money after financial attacks on Greece's debt seemed poised to spread to other weak European nations such as Portugal and Spain. Fear of default led to investors demanding high interest rates that Greece could not pay, forcing it to seek a bailout. Many feared market skepticism would make Portugal and Spain pay more and more to borrow, worsening their plight.
"We now see herd behaviors in the markets that are really pack behaviors, wolf pack behaviors," Swedish Finance Minister Anders Borg said on Sunday. If unchecked, "they will tear the weaker countries apart. So it is very important that we now make progress."
Spain and Portugal have committed to "take significant additional consolidation measures in 2010 and 2011," a statement from EU finance ministers said. The two countries will present them to EU finance ministers at their meeting on May 18.
"We are facing such exceptional circumstances today and the mechanism will stay in place as long as needed to safeguard financial stability," the ministers said.
Some eurozone nations, meanwhile, blamed the fragile governments and a lack of European cooperation for the crisis.
"I'm against putting all the blame on speculation," said Austrian Finance Minister Josef Proell. "Speculation is only successful against countries that have mismanaged their finances for years."
Seperately, eurozone leaders on Saturday gave final approval for a €80 rescue package of loans to Greece for the next three years to stave off default. The International Monetary Fund also approved its part of the rescue package - €30bn of loans - in Washington on Sunday.
- AP
