It has taken many long and agonisingly uncertain weeks but at last it is confirmed, and they could not have chosen a more symbolic moment.
Exactly 60 years to the day since the Schuman Declaration
which lead to the formation of the European Union as we know today, that during a press conference in the early hours of this morning (2am Brussels time
) after 11 long hours of talks the details of a long-overdue €750 billion
bailout plan emerged to stifle a sovereign debt crisis that began in Greece but now threatens the stability of the single currency.
Via the new “European Financial Stabilisation Mechanism
”, money is to be made available to rescue fellow Eurozone
economies that get into financial troubles, and would consist of €440 billion
of loans from Eurozone governments and topped up by €250 billion
from the International Monetary Fund
In addition, the European Commission
would make €60 billion
available to support member states experiencing "difficulties caused by exceptional circumstances beyond their control
", as Spanish Finance Minister Elena Salgado
The European Central Bank
(ECB) also announced that it would buy Eurozone government and private debt "to ensure depth and liquidity in those market segments which are dysfunctional
" - a move they were previously very keen not to do.
"It shows through this decision that we are placing considerable sums in the interest of stability in Europe,
” Ms Salgado said. "Our conclusions also reiterate yet again the need for progress to be made on regulating the financial system, on oversight and the supervision of the financial system, in particular derivatives and the role of rating agencies.
The moves sent the Euro and European shares sharply higher, with the pan-European Stoxx 600 Index
rising 4%, London's FTSE100
up 3.5% and in Paris the CAC-40
surged 5.8%. After all, throughout the whole Greek crisis the only way of calming financial markets has remained the firm announcement an initiative that would exceed their expectations and convince them that Europe would do whatever was necessary to save its monetary union.
While €750 billion
sounds like a large, unimaginable figure, the massive size of the bailout package reflects the gravity of the crisis gripping Europe and growing fears that the situation could grow so dire that it could hamper its fragile recovery in the global economic situation.
Perhaps more noticeably, it dispels that long-held notion that each EU member should manage its own finances as each Eurozone state contributes to the new mechanism. It is consequently opening an era in which members of the Euro take on unprecedented responsibilities for each others' fiscal troubles. No longer is the Eurozone just an area of common monetary policy, but national control of budgets. For a single currency to truly thrive it ultimately requires a transfer of fiscal powers towards the centre.
As the EU’s Economic and Monetary Affairs Commissioner Ollie Rehn said in the late-night press conference: “the fiscal efforts of the EU member states, the financial assistance by the Commission and by the member states, actions taken today by the ECB prove we shall defend the euro whatever it takes."
The €60 billion to be stumped up by the Commission will be available much more quickly to troubled countries and is to be compiled from funds dispensed under the overall EU budget - under a treaty provision for natural disasters and other "exceptional occurrences
." The crisis "is a threat to financial stability of the Euro area and the European Union, and therefore it is justified,
" Mr Rehn said.Alistair Darling
, the British Chancellor of the Exchequer who attended the meeting, said the United Kingdom would back the balance-of-payments facility, but, he stressed that creating a "stability fund for the Euro
" – the €440 billion part of the package - had to be "a matter for the Euro-group countries
” – in other words, ‘we’re not contributing to that!
What this plan reveals is that the EU is signalling that even small members of the Eurozone are too big to fail, which is a significant political statement and will do much to promote the single currency’s attractiveness to investors.
To further ensure the Eurozone doesn’t encounter another confidence crisis of such proportions, perhaps they should take another significant step and take heed of an idea flouted by the German Chancellor Angela Merkel
when she called for countries to face sanctions for failing to respect the Stability and Growth Pact
that states' annual budget deficit should not exceed 3% of national GDP…