Monday, November 29, 1999

Q+A - Details of EU crisis-prevention measures

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REUTERS - European Union finance ministers agreed emergency measures on Monday worth about 750 billion euros ($1,000 billion) with support from the International Monetary Fund to protect the euro zone against a sovereign debt crisis.WHAT WAS AGREED?* The 27 finance ministers agreed at talks also attended by representatives of the executive European Commission on the creation of a "European stabilisation mechanism" worth about 500 billion euros.* The IMF is expected to contribute about 250 billion euros in addition to this, they said.* The European Central Bank also announced steps to contain Greece's debt crisis, saying it would buy euro zone government and private debt and abandoning resistance to full-scale bond purchases.* The ministers also called for budget consolidation, sustainable finances, improved economic growth and closer economic coordination. Plans for fiscal consolidation and structural reforms would be accelerated where needed, they said.* They underlined the importance of strengthening fiscal discipline and establishing a permanent crisis resolution framework.* They reiterated the support of euro zone member states to the ECB in its actions to ensure the stability of the euro areas.WHAT IS THE STABILISATION MECHANISM?* It consists of 60 billion euros that will be available to euro zone states facing "exceptional circumstances", and is similar to a 50 billion euro lending facility already available to EU members outside the euro zone.* These loans will carry an interest rate similar to the 5 percent rate charged on EU/IMF aid to Greece.* Aid will be coordinated by the EU and the IMF; the mechanism will stay in place as long as is needed to safeguard financial stability.* In addition, the ministers announced the creation of a special-purpose vehicle via which euro area states would guarantee on a pro rata basis up to 440 billion euros. This will be available for three years and could take several weeks to become operational.* The special-purpose vehicle would raise money on financial markets to buy debt of fragile euro zone states.* The activation of the programme is subject to strong conditionality, based on terms similar to those of the IMF.
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