Europe prepares crisis fund in fear of Greek contagion

European leaders are to set up a crisis fund in case Greece's debt crisis infects the whole eurozone. Euro finance chief Jean-Claude Juncker says that it will be ready by Monday.

Reuters

Finance ministers are expected to put together the fighting fund at a meeting on Sunday ahead of Monday trading.

The European Commission will "discuss and adopt" detailed plans for the fund which aims to
head off market predators threatening the eurozone from 1:00 pm on Sunday, an EU official said.

The European Union executive "is working today on the proposal it will make to the council for the European Stabilisation Mechanism to preserve financial stability in Europe.,” the official told journalists.

Reports say that 70 billion euros will be raised.

EU treaty rules banning bailouts will have to be bent but the commission aims to use powers in "exceptional circumstances" that have already allowed it to help non-euro members like Hungary, Latvia or Romania, by borrowing on the bond market.

"Between now and Sunday night we will have a watertight line of defence in the eurozone," euro finance chief Jean-Claude Juncker said in the early hours of Saturday.

The decision to set up the fund was made at Friday’s eurozone leaders’ meeting, which endorsed the EU’s share of the rescue package for Greece.

Trichet is not ruling out a “nuclear option”, which would mean introducing emergency provisions for buying governments’ debt, according to Italian Prime Minister Silvio Berlusconi.

At present 13 of the 16 euro countries are under excessive deficit surveillance.

After the meeting French President Nicolas Sarkozy called for a “general mobilisation” to deal with a “systemic crisis”.

“We cannot fail the euro, the euro is Europe, the euro means peace,” he declared.

Sarkozy added that the Franco-German axis is “indestructible”, as German Chancellor Angela Merkel faces discontent at home over Germany’s participation in the Greek bailout.

Merkel’s Christian Democrats (CDU) expect to take a hit in an election in Germany’s most populous state, North-Rhine Westphalia.

The CDU and its allies the Freed Democrats may lose control of the state legislature and, therefore, their majority in the parliament’s upper house, allowing the centre-left opposition to block planned changes to taxation and health care.