EU finance ministers mull stability mechanism to defend euro

08:54, May 10, 2010      

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European Union (EU) finance ministers were racing against time on Sunday to get a European stabilization mechanism ready to safeguard euro, just hours before financial markets open on Monday.

At the extraordinary meeting began Sunday afternoon, finance ministers were considering to raise an existing aid fund to non- euro zone member states from 50 billion euros (66 billion U.S. dollars) to 110 billion euros (145.2 billion U.S. dollars) and make it accessible to euro zone countries.

The aid fund, called the balance of payments facility, is designed to ease a country's external financing constraints and only covers non-euro zone countries. Favorable AAA loan rates obtained by the EU on world markets are passed on to member states in need.

The fund is usually granted as part of a package of aid put together with international institutions such as the International Monetary Fund and the World Bank. EU has used the fund to help Hungary, Latvia and Romania to counter recent economic slowdown.

At an emergency summit on Friday night, leaders of the 16- member euro zone agreed to have the EU's executive European Commission propose a European stabilization mechanism to preserve the financial stability in Europe.

The mechanism is expected to be unveiled before Monday in a bid to quell mounting fears that the Greek debt crisis may spread to other euro zone countries, such as Spain and Portugal, which has undermined investors' confidence in euro and made world financial markets tumble.

At the summit, leaders finalized a 110-billion-euro (146- billion-U.S. dollar) aid package to Greece, which was activated by finance ministers on May 2. The euro zone countries pledged to provide debt-hit Greece with 80 billion euros (101.6 billion U.S. dollars) in loans over three years, while the International Monetary Fund will contribute another 30 billion (38.1 billion dollars).

However, investors think the rescue package may not suffice to help Greece which is burdened by debt of nearly 300 billion euros (396 billion U.S. dollars).



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