TOPWRAP 2-EU, IMF agree $1 trillion emergency fund

* Deal includes 600 bln euros from euro area, 250 bln IMF

* EU emergency measures its largest move yet

* ECB to buy government, private debt

* Euro rises, stocks firm

By Julien Toyer and Ilona Wissenbach

BRUSSELS, May 10 (BestGrowthStock) – Global policymakers unleashed
an emergency rescue package worth about $1 trillion to
stabilise world financial markets and prevent the Greek debt
crisis from destroying the euro currency.

The rescue, hammered out by European Union finance
ministers, central bankers and the International Monetary Fund
in marathon talks at the weekend, was the largest package in
over two years since G20 leaders threw money at the global
economy following the collapse of Lehman Brothers.

The size of the package surprised financial analysts and
the euro (EUR=: ) rose close to 2 percent while stocks in Asia

The U.S. Federal Reserve reopened currency swap lines with
several central banks and Group of Seven and Group of 20
finance ministers weighed in with their backing for the

EU Monetary Affairs Commissioner Olli Rehn told a news
conference the package of measures “proves we shall defend the
euro whatever it takes”.

The emergency measures are worth much more than any
previous attempts by the 27-country EU or the 16-state
single-currency group to calm markets. [ID:nLDE64900T]

They come after the Greek crisis drove sovereign debt
yields and insurance on this debt to record levels.

Financial markets had started to punish other euro zone
debt of members with bloated budgets such as Portugal, Spain
and Ireland, in what Sweden’s finance minister described as
“wolfpack behaviours”.

The $1 trillion package consists of 440 billion euros in
guarantees from euro area states, plus 60 billion euros in a
European instrument.

EU finance ministers said the International Monetary Fund
was expected to contribute 250 billion euros, taking the total
to 750 billion euros, or around $1 trillion.

However, IMF head Dominique Strauss-Kahn did not offer any
specifics but said said any IMF action would be on a
“country-by-country basis”.

The European Central Bank said it will buy euro zone
government bonds to help support fractured markets, abandoning
its resistance to full-scale asset purchases.

The ECB said in a statement that the step, dubbed the
“nuclear option” by many economists, was justified because of
government promises to meet strict budget targets and step up
consolidation efforts.

The euro currency, which last week sank to a 14-month low
against the dollar, rose as high as $1.2950 before slipping
back on the ECB decision to buy debt. (EUR=: ) By mid-morning it
was changing hands at $1.2930.

“Getting them to agree on a number is crucial,” said Tony
Morriss, market strategist at ANZ in Sydney. “But to me what
appears more important is the establishment of swap lines and
quantitative easing (QE). And while QE may weigh in the longer
term, the euro seems to be stabilising, at least in the near
term,” Morriss said.

The ECB said the scope of the purchases was yet to be
determined, but added they would be offset by
liquidity-absorbing operations so that the stance of monetary
policy is unaffected.

The ECB last year announced a 60 billion programme to buy
covered bonds but this would be its first move into buying
government debt.


For an overview of stories on the crisis

Graphic on euro’s performance

Euro zone crisis in graphics

Gold prices, considered a safe haven investment, fell as
much as 1.5 percent after touching near record highs last week.


The central bank swap facility is meant to ease fears of a
dollar shortage as investors dump riskier assets and move back
into the U.S. dollar. The cost of interbank three-month U.S.
dollar funds saw its largest rise in 16 months on Friday.

The move is designed to ensure there is enough money and
confidence in the global financial system to stave off
2008-style credit crunch.

Ministers from Spain and Germany said euro zone countries
would speed up their efforts to tackle their fiscal problems.

Jitters over euro zone finances have set global markets on
edge and created the conditions for a nearly 1,000-point drop
in the Dow Jones industrial average (.DJI: ) on Thursday.
Authorities are investigating what triggered the dramatic move.

Both the EU and the IMF has already approved a 100 billion
euro package to support Greece, whose budget deficit blew out
last year to 13.6 percent of GDP.

To secure the funds, Greece has committed to deep budget
cuts that have already caused violent public protests in the
country as it moves to get the deficit back down to the EU
limit of 3 percent.


Policymakers around the globe are worried the crisis in
Greece could spread to other countries, fears compounded by the
unexplained shock plunge in U.S. stocks (Read more about the stock market today. ) on Thursday.

In Europe, officials said they would fight speculative
investors they blame for aggravating the public debt crisis.

“We now see … wolfpack behaviours, and if we will not
stop these packs, even if it is self-inflicted weakness, they
will tear the weaker countries apart,” Swedish Finance Minister
Anders Borg told reporters in Brussels before the EU meeting.

Economists estimate that if Portugal, Ireland and Spain
eventually come to require bailouts similar to Greece’s, the
total cost could be some 500 billion euros.

Investing Research

($1=.7453 Euro)
(Additional reporting by Jan Strupczewski, John O’Donnell and
David Brunnstrom in BRUSSELS and Lesley Wroughton in
WASHINGTON; Writing by Paul Tait; Editing by Neil Fullick)

TOPWRAP 2-EU, IMF agree $1 trillion emergency fund