EU to Fend off Market "wolves" in Greek Crisis

European Union finance ministers on Sunday promised to counter the "wolfpack" of the financial markets and defend the euro as they held an emergency meeting on ways to keep Greece's debt crisis from spreading., Reuters 5/9/2010 5:11:11 PM

The European Commission was presenting a proposal for a stabilization mechanism intended to provide a multibillion- euro safety net for other euro zone countries with bloated public finances such as Portugal, Spain or Ireland.

Financial markets have been punishing euro zone members with high deficits or debts as well as low economic growth, threatening to plunge them into Greece's plight.

The International Monetary Fund on Sunday approved a 30 billion euro ($40 billion) rescue loan for Greece, part of a broader combined EU-IMF bailout totaling 110 billion euros ($147 billion) over three years.

To secure the funds, Greece has committed to budget austerity measures so sharp that they have already caused violent protests.

But whether the coordinated international actions would settle global markets, which have been roiled in recent days, remained to be seen. Policymakers around the globe have become worried about the knock-on effects should the crisis spread.

Economists estimate that if Portugal, Ireland and Spain -- three other heavily indebted euro zone countries -- eventually come to require bailouts similar to Greece's, the total cost could be some 500 billion euros.

EU sources said the European Commission would ask the bloc's finance ministers to extend an existing aid mechanism for non-euro zone countries to nations in the single-currency area.

The Commission will also ask them to raise the existing amount available under the mechanism, called the balance-of-payments facility, by 60 billion euros ($80.5 billion). The maximum available now is 50 billion euros.

The 60 billion euro top-up would be guaranteed by all 27 EU members and the loans, if paid out to an EU member, would carry conditions set by the International Monetary Fund, one EU source said.

As an additional measure for euro zone countries only, the Commission will propose a separate mechanism of intergovernmental loans, the source said.