EU mulls new safety net

09:22, May 10, 2010      

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  Europe's leaders raced against an Asian clock Sunday, hoping to lift financial markets at today's opening with a new crisis fund for debt-ridden euro countries and support from their central bankers.

  Ahead of emergency finance ministerial efforts on a "watertight" defense against predatory threats to commercial banks and wider economic recovery, European Union officials scrambled to prepare the scope of their latest firewall.

  An EU diplomat told AFP that a kind of "bank" would be set up with unused funds from the bloc's budget, which would then serve as "base capital on which to borrow 60 billion euros ($76.5 billion) on the bond market."

  The source said that would be supported by a "gesture" from the politically independent European Central Bank, as a signal that it would intervene to buy euro governmental debt, what traders and analysts refer to as the "nuclear" option.

  The plans are intended to extend emergency provisions that have previously allowed the EU to help non-euro members of the eurozone, such as Hungary, Latvia or Romania, given treaty obstacles stemming from monetary union.

  European Commission officials were massaging detailed proposals to "preserve financial stability in Europe" in a meeting of its executives last night, before putting them to the 27-nation bloc.

  "We will defend the euro," said Spanish Finance Minister Elena Salgado, whose country currently chairs the EU, but added that Madrid would not call on a planned new common bailout fund.

  A chain of European debt sent shares tumbling across the globe last week and has left EU banks in the firing line as investors flee amid growing fears that eurozone governments will be unable to balance their books over the coming years.

  US President Barack Obamaspoke to German Chancellor Angela Merkel for the second time in three days Sunday and pressed for "resolute" EU steps to build market confidence, the White House said.

  On Friday, as volatile markets closed for the weekend, the euro hit $1.27 as investors warned that failure to nail down a credible rescue plan at the meeting of EU finance ministers could pressure the euro even more.

  Battered by the Greek fiscal crisis, the euro could weaken to the point of parity with the US dollar, a top German economist said Sunday.

  While the finance minister for non-euro Sweden Anders Borg Sunday said he would "not rule out" helping to underwrite a European Union plan for a bailout fund, British Chancellor of the Exchequer Alistair Darling said that Britain would refuse to do so.

  "We need to show again today that by acting together we can stabilize the situation, we do not want to jeopardize the recovery that is slowly taking place. And we will play our part in that," he told reporters. "But when it comes to supporting the euro, obviously that is for the eurozone countries."

Source: Global Times


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