Europe agrees bailout to avoid spread of debt

France's Finance Minister Christine Lagarde arrives in Brussels

Reuters

By RFI

European nations have joined the International Monetary Fund in establishing a 750-billion-euro aid package for Greece and its eurozone neighbours. European leaders hope the deal will prevent the euro from succumbing to the debt crisis that has rocked Greece, and threatens to spread to Spain and Portugal.

Early on the signs were good, with the euro, which hit a 14-month low last week, surging to 1.29 US dollars on the back of the announcement.

German Chancellor Angela Merkel said the package serves to strengthen and protect the currency, while European Commission President Jose Manuel Barroso said the eurozone was gaining confidence.

The bailout proves that we shall defend the euro whatever it takes, said the European Union's commissioner for economic and monetary affairs, Olli Rehn.

The deal consists of 440 billion euros from the 16-member eurozone, with an additional 60 billion coming from the European Commission. Another 250 billion euros will come from the IMF.

According to a European Central Bank statement, measures will be taken “to help improve liquidity conditions in US dollar funding markets and to prevent the spread of strains to other markets and other financial centres".

The breakthrough followed a series of telephone calls Sunday between Merkel, US President Barack Obama and French President Nicolas Sarkozy. Also Sunday, European finance ministers arrived in Brussels for talks that lasted 11 hours.

On Friday, eurozone leaders approved an 110-billion-euro loan package to Greece, which will be backed by the EU and IMF.

Last week, fears of a possible debt default by Greece had sent equity plunging along with the euro.