EURO SUMMIT:THE INTERNATIONAL Monetary Fund (IMF) last night approved its €30 billion share of the €110 billion rescue fund for Greece as EU finance ministers and central bankers came under pressure to strike deals to prevent any sovereign default in the euro zone.
As they arrived in Brussels yesterday afternoon, finance ministers from the 27 EU member states pledged to do all in their power to protect the euro by developing a permanent rescue mechanism for distressed single currency members.
IMF approval for the Greek loan, which came after a three-hour board meeting in Washington yesterday, clears the way for the release of funds to Athens this week as the heavily indebted country confronts a deadline to repay an €8.5 billion bond next Monday.
Under discussion last night in a landmark effort to stem the wave of debt-market contagion flowing from the Greek debt crisis were parallel plans under which the European Commission would provide last-resort loans to distressed euro countries, while the European Central Bank (ECB) would buy debt from euro countries.
The plans would see each institution take on responsibilities akin to those of lender of last resort to the euro countries, thereby sending the signal to financial markets no member of the currency would default on its obligations.
As the talks continued late last night in Brussels, diplomats suggested that the commission’s plan was likely to be significantly revised before the ministers sought to strike a definitive deal.
Sources said, however, that the ministers hoped to reach agreement before Asian markets reopened after the weekend break, shortly after midnight Brussels time. Having signalled to markets late on Friday that they wanted to sign a pact over the weekend, there was concern to prevent any further turmoil if no agreement was reached.
Members of the governing council of the ECB were involved in separate talks by telephone, an informed source said.
One of the key issues in the Brussels talks was the extent to which EU governments would agree to guarantee the liabilities of the commission if it tapped debt markets to secure funding that it would lend on to distressed euro governments.
The central dilemma, said sources, was whether the 16 euro- zone countries acted as guarantor to the EU executive or whether all 27 member states took on that responsibility.
Although the many member states were pushing to ensure all EU governments took part in an “EU community” initiative with serious implications for the entire EU budget, British chancellor Alistair Darling argued that non-euro countries should not be asked to take part.
Talks on the formation of a government in London following the inconclusive election on Thursday are a further complication.
Separate concerns have been raised by net contributors to the EU budget, Germany and France among them, as well as net recipients of EU funding, who stand to lose out if the commission’s own budget comes under pressure.
Less contentious, said diplomatic sources, was a proposal from the commission to extend into the euro zone a €50 billion scheme it uses to help non-euro countries to balance their books.
The fund would be boosted by €60 billion under the commission’s plan.
The ECB’s exact intentions remained shrouded in doubt last night, although a declaration of full support for its efforts to ensure the stability of the euro area was seen as a green light for the bank to start buying government debt.
Both the bank and the commission are in favour of such a move, as are the governments of Spain, Portugal and Italy.
