Page last updated at 11:41 GMT, Monday, 10 May 2010 12:41 UK

EU ministers offer 750bn-euro plan to support currency

EU Monetary Affairs Commissioner Olli Rehn: "The ECB shall defend the euro whatever it takes"

Emergency measures worth 750bn euros ($975bn; £650bn) have been agreed to prevent the Greek debt crisis from affecting other eurozone countries.

The 16 members of the single currency bloc will have access to 440bn euros of loan guarantees and 60bn euros of emergency European Commission funding.

The International Monetary Fund (IMF) will also contribute up to 250bn euros.

Global stock markets surged, with London 5% up at midday, and the euro recovering after last week's tumble.

Hours after the emergency package was announced central banks in Europe reportedly began buying government bonds issued by economies in greatest difficulty.

"The eurozone is certainly regaining confidence," said EU Commission President Jose Manuel Barroso. "Our fundamentals are certainly good."

Markets soar

There had been fears that without the measures, the euro might have come under pressure on markets as investors grew concerned about financially-troubled states such as Portugal and Spain.

Many would say the crisis has been postponed rather than solved
Robert Peston, BBC business editor

The euro strengthened in early trading, surging above $1.30, after hitting a 14-month low against the dollar last week.

At midday in London, the FTSE 100 share index was trading up 255.5 points at 5,314.

This followed a rise in Asian stock markets, with the Japan's Nikkei 225 index up 1.3% and Hong Kong's Hang Seng index climbing 0.8%.

The risk premium on some eurozone government bonds fell sharply, as did the price of insuring them against default.

The rate on two-year Greek bonds fell immediately, from 18.1% to 4.9%.

On Friday, eurozone leaders approved an 110bn-euro loan package to Greece, which will be backed by the EU and IMF.

Marathon talks

Speaking early on Monday after 11 hours of talks, Spanish Finance Minister Elena Salgado said an agreement had been reached on a package to defend the euro and eurozone economies.

ANALYSIS
Jonny Dymond
By Jonny Dymond
BBC News, Brussels

What was meant to be a two-hour meeting of finance ministers turned into an 11-hour negotiation.

The sums pledged are huge - enough to support the borrowing of several eurozone countries for a couple of years. And central banks around the world have launched what look like co-ordinated actions to assist financial stability.

So far, market reaction has been positive, but there will be demands for more detail about the bulk of the package - how the money will be raised, how quickly it might be made available and under what conditions it will be disbursed.

The UK has a very limited exposure to this package, and has not participated in the bulk of the deal.

Under the aid plan, the European Commission would make 60bn euros available to support member states experiencing "difficulties caused by exceptional circumstances beyond their control", she said.

Ms Salgado said eurozone member states would complement such resources through a Special Purpose Vehicle (SPV), known as the European Financial Stabilisation Mechanism and worth 440bn euros, which they would guarantee.

The IMF will contribute an additional sum of at least half of the EU's contribution to the SPV - a total of 250bn euros.

"It shows through this decision that we are placing considerable sums in the interest of stability in Europe," she said.

"Our conclusions also reiterate yet again the need for progress to be made on regulating the financial system, on oversight and the supervision of the financial system, in particular derivatives and the role of rating agencies."

The European Central Bank (ECB) also announced that it would buy eurozone government and private debt "to ensure depth and liquidity in those market segments which are dysfunctional".

What went wrong in Greece?

An old drachma note and a euro note
Greece's economic reforms that led to it abandoning the drachma as its currency in favour of the euro in 2002 made it easier for the country to borrow money.
The opening ceremony at the Athens Olympics
Greece went on a debt-funded spending spree, including high-profile projects such as the 2004 Athens Olympics, which went well over budget.
A defunct restaurant for sale in central Athens
It was hit by the downturn, which meant it had to spend more on benefits and received less in taxes. There were also doubts about the accuracy of its economic statistics.
A man with a bag of coins walks past the headquarters of the Bank of Greece
Greece's economic problems meant lenders started charging higher interest rates to lend it money and widespread tax evasion also hit the government's coffers.
Workers in a rally led by the PAME union in Athens on 22 April 2010
There have been demonstrations against the government's austerity measures to deal with its 300bn euro (£267bn) debt, such as cuts to public sector pay.
Greek Prime Minister George Papandreou at an EU summit in Brussels on 26 March 2010
Now the government is having to access a 110bn euro (£95bn; $146.2bn) bail-out package from the European Union and International Monetary Fund.
Greece's problems have made investors nervous, which has made it more expensive for other European countries such as Portugal to borrow money.
Greece's problems have made investors nervous, which has made it more expensive for other European countries such as Portugal to borrow money.
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EU Monetary Affairs Commissioner Olli Rehn said: "The fiscal efforts of the EU member states, the financial assistance by the commission and by the member states, actions taken today by the ECB prove we shall defend the euro whatever it takes."

'Overwhelming force'

Analysts were surprised at the magnitude and co-ordination of the package.

"This truly is overwhelming force, and should be more than sufficient to stabilise markets in the near term, prevent panic and contain the risk of contagion," said Mario Annunziata at UniCredit bank.

The Federal Reserve later said it would re-open currency swap facilities with other major central banks "to help improve liquidity conditions in US dollar funding markets and to prevent the spread of strains to other markets and financial centres".

In an interview with Russian media, US President Barack Obama said: "I am very concerned about what's happening in Europe.

"But I think it is an issue that the Europeans recognise is very serious."



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FROM OTHER NEWS SITES
The Independent FTSE falls back amid political uncertainty - 4 hrs ago
Irish Times Markets fall on EU rescue deal concerns - 5 hrs ago
France24 MARKETS: Markets and euro dip as market relief over EU loan plan fades - 5 hrs ago
Sydney Morning Herald Euro relief rally runs out of puff - 6 hrs ago
Reuters via Yahoo! Shares fall, euro dips as doubts on EU plan grow - 6 hrs ago


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