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€750-billion Pledge To Shore-up EU Economies …

  • May 11th, 2010
  • Posted by EUEditor

eu-symbol-coins.jpgThe debt relief package designed to protect the Euro currency from speculative attacks, and ward off a new recession, was met today (Monday 10.5.10) with strengthening share prices and a recovery of the Euro on money markets.

BIG MONEY DEPLOYED

At Brussels, Finance Ministers from the sixteen countries using the Euro worked into the early hours of this morning to put in place the loan guarantees totaling €750-billion (A$1073-3-billion; dcerates.com, 10.5.10).

Last week the European Union and Internal Monetary Fund provided over €60-billion (A$86-billion) in relief for the heavily-indebted Greek government, giving it access to reduced interest on its loans. (See EUAustralia Online: “Three dead in Athens …”, 6.5.19; “Greece’s milestone”, 24.4.10; “EU Summit: in Greeks we trust”, 28.3.10; “Greece, Germany, Brussels”, 18.3.10).

STABILITY, SOLIDARITY AND RESPONSIBILITY

rompuy.jpgThe President of the European Council, Herman Van Rompuy, called that an act of “solidarity and responsibility”; working both ways, but for the moment, patently solidarity on the part of Greece’s EU partners, demanding responsibility in financial management, in return.

The Ministers at Brussels had feared that from this morning, investors might begin withdrawing also from Portugal or Spain, spreading the problem.

council-building3.jpgMost called the war chest a powerful stability measure showing their determination to defend the European currency; one said they were dealing with a “wolf pack problem” on the markets.

Said the Associated Press:

“The European Central bank will buy government and private debt to keep debt markets working and lower borrowing costs …

“Under the three-year plan, the European Commission — the EU’s governing body — will make  €60 billion ($US 75 billion; A$86-billion) available while countries from the 16-nation Eurozone would promise backing for  €440 billion ($US 570 billion; A$630-billion). The IMF would contribute an additional sum of at least half of the EU’s total contribution, or €250 billion (A$357.7-billion)…

“In the end, even longtime skeptic Germany realised Europe had to show the money after financial attacks on Greece’s debt seemed poised to spread to other weak European nations …

“Fear of default led to investors demanding high interest rates that Greece could not pay, forcing it to seek a bailout. Many feared market skepticism would make Portugal and Spain pay more and more to borrow, worsening their plight.”

CONCERNS OVER SOVEREIGN DEBT CRISIS START TO EASE

Market analysts said the EU solidarity move, to create the guarantee pool, had made it very difficult to separate-out risks for susceptible members like Greece, Spain, Portugal, a few of the Eastern European states, and to an extent Italy or Ireland.

Instead investors would be dealing with  “average quality paper” across the zone as a whole.

Put another way, chances of a sovereign debt crisis were receding.
Other observers considered the pledge money in one key region might help, though only for some time, because debt levels were excessive throughout the world.

MARKETS TURN AROUND

euro-symbol-reduced.jpgShort-term indicators went pronouncedly the other way, seeing a strong rally on world stock exchanges, the recovery of the Euro and restoration of demand for Greek, Portugese and Spanish government bonds.

Share prices on Monday rose 9% in france, 11% in Italy; the FTSE index was boosted 5.16% in London; American markets followed suit, the Dow Jones Industrial Index up 3.9%; the BBC global index registered +1.95%. The trend extended to Australia, prices up close to 3%.

Corrections would follow the next day; signalling a long road would lie ahead.
Reference

BBC News, London, “EU ministers offer 750bn-euro plan to support currency”. 10.5.10. http://news.bbc.co.uk/2/hi/business/8671632.stm, (10.5.10).

BBC News, London, Market Data,10.5.10. http://news.bbc.co.uk/news/business/market_data/overview/default.stm, (11.5.10).

Raf Casert and Elena Cecatoros, Brussels; Associated Press (NY), “EU creates $1 trillion package to save Euro”, 10.5.10. http://www.google.com/hostednews/ap/article/ALeqM5jt6BMLbbL353kzg8BK_8Y4-CxMQQD9FJSEG80, (10.5.10).

“Wall Street Journal”, NY, “Australia Shares End Up 2.7% On EU Support Plan”, 10.5.10.
http://online.wsj.com/article/BT-CO-20100510-702899.html?mod=WSJ_World_MIDDLEHeadlinesAsia, (11.5.10).

Pictures

Van Rompuy (EU); European Council, summit site

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