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Eurozone puts up $670 billion in fresh bailout money to calm debt fears
COPENHAGEN, Denmark (AP) ' The 17 countries that use the euro will put up '500 billion ($670 billion) in fresh money to help countries with debt troubles ' a big increase from the previous '300 billion limit, but unlikely to calm concerns that large countries like Spain or Italy will not be protected if they run into trouble.
Eurozone finance ministers, who were meeting in Copenhagen, Denmark, said that ' in combination with some '300 billion that had already been spent on saving Greece, Ireland and Portugal ' the currency union now possesses a '800 billion ($1trillion) financial firewall that should help put an end to its two-year-old debt crisis.
"We have a strong agreement on the firewall, which is a very good answer from the eurozone," said Francois Baroin, the French finance minister.
The eurozone has been under pressure to build a strong defense against further financial problems among its members. International institutions like the International Monetary Fund and the Organization for Economic Cooperation and Development had been calling for financial buffers of as much as '1 trillion.
Many economists, as well as non-European countries like the U.S and China, fear that further trouble in Europe could smother a burgeoning economic recovery in other parts of the world. Together, Italy and Spain hold more than '2.5 trillion in debt and a default ' or even the serious threat of a default ' could pummel banks across Europe and spread panic on global markets.
But putting up large amounts to save some of its members is not an easy task for the eurozone. Rich countries like Germany and Finland face rising opposition against bailouts among their voters, while the finances of many other states are already overstretched.
Even reaching the overall '800 billion capacity required a complicated patchwork of several old and new funds and loan programs. Ministers struggled to add up old commitments to reach a large figure to impress markets ' only to quickly explain its components to calm down voters worried about their tax money.
Of the '800 billion, only '500 billion is fresh money. And even that amount has to be built up and cobbled together over time, as the eurozone moves from its interim bailout fund, the European Financial Stability Facility, to its new rescue vehicle, the European Stability Mechanism.
The ESM, which will come into force in July, will initially only be able to lend out some '200 billion of its future '500 billion capacity. By mid-2013, that figure will rise to '400 billion and until then some '240 billion left over in the old EFSF will also still be available if needed.
The big question will now be if the new firewall will convince not only investors to keep lending money to vulnerable euro countries, but also get other large non-European economies to send new resources to the IMF. The IMF says it needs some $500 billion to support governments around the wold in case the crisis intensifies again. The eurozone has already promised to provide '150 billion ($200 billion) of that amount and other IMF members are expected to make a decision at a meeting in Washington in April.
France's Baroin was optimistic that the new commitments made Friday ' together with national efforts to cut budget deficits ' will be enough to get other countries to participate.
"I think when we had national political fiscal consolidation and our agreement from today, we have a strong position from a European zone for the next commitment in Washington in two weeks," he told reporters.