European leaders bid to calm markets with defence plan to protect euro nations
EUROPEAN leaders attempted to calm the increasingly jittery markets yesterday by announcing a plan they hope will protect the euro nations against the financial turmoil triggered by the Greek debt crisis.
French president Nicolas Sarkozy and German chancellor Angela Merkel said the 16 eurozone nations will set up a financial defence plan by the time the markets reopen tomorrow.
The market turbulence has already reverberated beyond the eurozone and on Friday stocks from Wall Street to Tokyo plummeted as the euro hit a new low against the dollar.
Amid dire warnings of economic collapse, Sarkozy and Merkel were in Brussels to launch the first steps of a plan designed to pre-empt more economic chaos and defend all 16 euro nations against aggressive market movement.
The next step will see an emergency meeting held today to finalise the plan, which has the backing of the independent European Central Bank.
It is hoped that the support of the Central Bank will lend credibility to the plan, which involves formalising mechanisms designed to preserve the eurozone's stability.
"The eurozone is going through the worst crisis since its creation," Sarkozy said during the weekend eurozone summit in Brussels.
"The leaders have decided to put in place a European intervention mechanism to preserve the stability of the eurozone. The decisions taken will have immediate application, from the point that financial markets open on Monday morning."
Should the plan fail, the implications would be severe. Yesterday the Finnish prime minister Matti Vanhanen said: "If the domino effect begins, no economy is safe."
Italian president Silvio Berlusconi declared that the eurozone was in a "state of emergency".
The eurogroup chairman Jean-Claude Juncker said: "We are talking about a global attack against the euro, and the eurozone must react as one."
The summit, originally called to sign off on a bail-out plan for Greece, turned into one of crisis management amid market turmoil.
Financial markets have continued to sell off the euro and Greek bonds even as EU leaders have insisted that the Greek financial implosion is a unique combination of bad management, free spending and statistical cheating that doesn't apply to other eurozone nations.
Investors have been selling the euro fearing that the Greek bail-out will not be enough to prevent Greece from collapsing under its massive debt mountain and going bankrupt.
The fear is that Greece will take the other eurozone countries with it. The collapse of the euro would inevitably have severe effects on the pound.
The new mechanism could be funded by bonds issued by the European Commission with guarantees from eurozone states.
Precise details have yet to be disclosed, but it is understood that EU law provides a legal basis for such a mechanism.
The treaty governing the EU says that if a member of the 27-nation bloc is in difficulties caused by circumstances beyond its control, EU ministers may grant it financial assistance.
Another approach being explored is a mechanism enabling the European Commission to go on the markets and get money with the explicit guarantee of the member states and an implicit guarantee of the European Central Bank.
The precise details of the plan will be thrashed out at an emergency meeting today.
The crisis saw Berlusconi and Sarkozy cancel trips to Moscow to mark the anniversary of the end of the Second World War in order to continue talks.
Financial markets have been hammering eurozone countries with high deficits or debts as well as low economic growth. The economic conditions threaten to force Portugal, Spain and Ireland into a position where, like Greece, they would need to seek financial aid.
The weeks of indecision from the eurozone leaders over whether to bail out Greece has been blamed for heightening market uncertainty.
Finally, the eurozone leaders agreed to accelerate budget cuts and ensure deficit targets are met this year. They also decided, under pressure from the markets, to ask all 27 EU countries to agree a financial mechanism to ring-fence the Greek crisis before markets open tomorrow.
After days of violent disturbances in Greece, triggered by punitive austerity measures imposed by the Greek government, a bail-out was finally agreed at the end of last week.
On Friday, the EU summit approved $147 billion in emergency EU/IMF loans to Greece over three years to help it over a budget crisis in exchange for severe budget cuts.
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Tuesday 21 May 2013
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