Western central banks strive to contain Greek debt crisis

20:01, May 10, 2010      

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Central banks of Western countries have fought back to contain the Greek crisis by setting up a 750-billion-euro (1-trillion-dollar) stabilizing fund and jointly injecting liquidity into financial markets.

Finance ministers of European Union (EU) nations announced earlier Monday they would set up a big stabilizing fund to stop the Greek debt crisis from spreading to other countries. The decision was taken after more than 10 hours of tough negotiations.

Under the plan, the EU will provide 60 billion euros, while eurozone countries will try to secure another 440 billion euros through bilateral backing.

The International Monetary Fund (IMF), which has been playing a more active role in tackling the Greek debt crisis, will provide 250 billion euros.

Spanish Finance Minister Elena Salgado, whose country currently holds the rotating EU presidency, said after the meeting "we are placing considerable sums in the interest of stability in Europe."

Meanwhile, Olli Rehn, EU's monetary affairs commissioner, said the decision to set up the stability fund proved the EU countries would do everything possible to defend their shared currency.

EU finance ministers said in a joint statement released after the meeting that the stability fund would be in place to "safeguard financial stability."

Late last year, the Greek government announced in a surprising move that its budgetary problems were much more serious than the previous government had acknowledged.

Athens has been under severe fiscal pressure as government spending expanded to stimulate the economy and to meeting social security claims while tax revenues shrank during the sharp economic downturn.

Greece inched closer to "bankruptcy" after international rating agencies downgraded its sovereign debt ratings and bond market investors pushed up its borrowing costs to unsustainable high levels.

The EU and the IMF announced a joint rescue plan of 110 billions euros on May 2 to help dampen fears about the Greek government defaulting on its debt, but the plan failed to assuage market fears and more and more believe the Greek debt crisis could well spread to other weaker eurozone economies like Portugal and Spain.

Analysts believe the latest "monster" fund was meant to prove to the market that the EU and the IMF were taking credible measures to contain the Greek debt crisis, and restore market confidence.

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