After 11 hours of negotiations that stretched into early Monday, EU finance ministers have agreed to an enormous 750 billion euro (about U.S. $960 billion) bailout plan aimed at preventing the Greek financial crisis from spreading further into the eurozone.
By establishing a standby fund that eurozone countries in financial trouble — such as Italy, Spain and Portugal — can access, EU leaders hope to calm global markets and signal that countries will not be allowed to default.
Many details of the fund are still being worked out. But according to the BBC, the 27 nations of the eurozone will contribute 500 billion euros to the package, of which 60 billion euros, provided by the European Commission, will be available immediately for debt-laden countries to borrow. Debt guarantees will make up the rest of the EU countries’ commitment, and the IMF has pledged an additional 250 billion euros.
The news of the bailout plan sent the euro higher in trading Monday. The euro fell sharply last week as Greece’s continuing financial problems and riots there led to concern that the EU wasn’t acting fast enough or decisively enough to address the debt issues plaguing several countries across the continent.
EU finance officials hope that the size of the bailout commitment Monday will make it easier and cheaper for countries like Spain and Portugal to borrow money on the open market to clean up their books. The commitment also signals to market speculators that eurozone member states will not be allowed to default.
While markets welcomed the larger-than-expected package Monday, concerns remain that the package will only translate into short-term stability and that troubled countries will not exhibit the political will to fix their finances enough to emerge from the danger zone. The Greek government’s austerity measures have been met with riots in the streets. And the political fallout for countries coming to the rescue is already being felt: In Germany on Sunday, Angela Merkel’s coalition lost power in the country’s upper house of Parliament after a regional election. The loss was widely seen as a result of public dissatisfaction with the bailout of Greece.