EU to defend euro with stabilisation plan

* EU ministers vow to do all possible to defend euro

* EU set to approve stabilisation mechanism for euro zone

By Jan Strupczewski

BRUSSELS, May 9 (BestGrowthStock) – European Union finance ministers
said on Sunday they would do everything possible to defend the
euro before starting talks on emergency measures to stop
Greece’s debt crisis spreading to other countries.

The European Commission will present the ministers with a
proposal on a stabilisation mechanism intended to provide a
safety net for other euro zone countries with bloated public
finances and low growth such as Portugal, Spain or Ireland.

Bond yields of these countries have been rising sharply —
increasing the risk premium investors pay to hold their debt —
on market concern they may be next to need assistance.

Greece has already secured a 110 billion euro ($147.6
billion) three-year emergency loan package from the euro zone
and the International Monetary Fund.

“We are going to defend the euro… we have to give more
stability to our guarantee,” Spanish Economy Minister Elena
Salgado told reporters as she arrived for the talks in Brussels.

EU sources said the Commission proposal that the ministers
would discuss would extend the European Union’s balance of
payments facility, now reserved for non-euro zone countries with
current account problems, to euro zone members as well.

Under such a mechanism, the European Union’s executive arm,
the European Commission, would raise money on the markets using
its AAA rating and lend it to the euro zone country in need,
perhaps together with the IMF under strict conditions.

The bonds would be guaranteed by euro zone countries.

A similar mechanism has already been successfully used in
the cases of Latvia, Romania and Hungary after the pool of money
available was increased to 50 billion euros last year.

The mechanism could be used on the basis of an EU law which
says that if a member of the 27-nation bloc is in difficulties
caused by circumstances beyond its control, EU ministers may,
under certain conditions, grant it financial assistance.

“The situation in the financial markets has gone in a very
bad direction, even though the Greek situation was brought under
control,” Finnish Finance Minister Jyrki Katainen told a news
conference in Helsinki.

“Now we have to do everything we can to bring stability in
time,” he said.

The ministers’ meeting follows a summit of euro zone leaders
on Friday, which asked for a European Stabilisation mechanism to
be ready before markets open on Monday.

Some economists said the move was welcome news, but it would
cure the symptoms, rather than the disease.

“By putting in place additional safeguards for the euro area
financial system, governments finally appear to be rising to the
challenge of the sovereign debt crisis,” Morgan Stanley said in
a research note to clients.

“But, like the measures taken before – for the benefit of
Greece – a stabilisation fund is just buying time for distressed
borrowers,” the bank said.

It added: “The fiscal policy action taken in these countries
during this “extra time” is essential. If yet another rescue
mechanism isn’t followed by aggressive austerity measures, the
problem just continues to fester – and could eventually spread
even wider.”

Euro zone leaders vowed on Friday to accelerate their fiscal
consolidation programmes to make sure they meet targets set by
EU finance ministers this year and in the coming years.

Investing Research

(Reporting by Jan Strupczewski, editing by Timothy

EU to defend euro with stabilisation plan