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03-31-2012, 09:29 AM #1
Europe boosts bailout fund to $1 trillion
The 17 countries that use the euro will put up 500 billion euros ($670 billion) in fresh money to help countries with debt troubles - a big increase from the previous 300 billion euros limit, but unlikely to calm concerns that large countries like Spain or Italy will not be protected if they run into trouble.
Eurozone finance ministers, who were meeting in Copenhagen, Denmark, said that - in combination with some 300 billion euros that had already been spent on saving Greece, Ireland and Portugal - the currency union now possesses a 800 billion euros ($1trillion) financial firewall that should help put an end to its two-year-old debt crisis.
"We have a strong agreement on the firewall, which is a very good answer from the eurozone," said Francois Baroin, the French finance minister.
The eurozone has been under pressure to build a strong defence against further financial problems among its members. International institutions like the International Monetary Fund and the Organization for Economic Cooperation and Development had been calling for financial buffers of as much as 1 trillion euros.
Many economists, as well as non-European countries like the U.S and China, fear that further trouble in Europe could smother a burgeoning economic recovery in other parts of the world. Together, Italy and Spain hold more than 2.5 trillion euros in debt and a default - or even the serious threat of a default - could pummel banks across Europe and spread panic on global markets.
But putting up large amounts to save some of its members is not an easy task for the eurozone. Rich countries like Germany and Finland face rising opposition against bailouts among their voters, while the finances of many other states are already overstretched.
Even reaching the overall 800 euros billion capacity required a complicated patchwork of several old and new funds and loan programs. Ministers struggled to add up old commitments to reach a large figure to impress markets - only to quickly explain its components to calm down voters worried about their tax money.