WORLD MARKETS surged after the EU and International Monetary Fund responded to alarm over “contagion” in debt markets with a €750 billion fund to shore up distressed euro zone countries.
The plan could see Ireland guaranteeing more than €7 billion in loans for financial rescues. Although EU authorities have struggled to stem pressure from Greece’s debt crisis, their decision to go for broke reflects warnings that the debt market could freeze if they did not quickly seize the initiative.
Even as European Commission chief José Manuel Barroso said the deal ensured any attempt to weaken the euro’s stability was doomed to failure, an IMF official described the plan as a measure to momentarily calm markets.
“This is some kind of morphine that stabilises the patient – and the real medication and the real treatment has to come,” said Marek Belka, director of the IMF’s European division.
European leaders called for emergency talks early on Saturday morning after global leaders expressed anxiety about panic selling in markets last week. The US praised the plan with a White House official saying President Barack Obama “supports assertive action” to address the issue.
The plan set off the largest one-day rally in European shares for 17 months. Financing costs dropped significantly on debt issued by Spain and Portugal, the two countries considered most vulnerable to contamination from Greece.
The plan will see euro zone members guarantee up to €440 billion in loans to distressed governments.
Each country’s share of the burden will be determined by its stake in the share capital of the European Central Bank. Ireland’s 1.64 per cent share means the Government would guarantee €7.22 billion if the entire sum was drawn down.
While EU finance ministers have instructed Spain and Portugal to intensify measures to restore control over their public finances, the Government said it is not under pressure to speed up its recovery plan.