BRUSSELS: A $1 trillion global emergency rescue package to stabilise the euro reversed the slide in world financial markets on Monday but left longer-term questions about whether Europe's weakest economies can manage their debt.
The plan, hammered out by European Union finance ministers, central bankers and the International Monetary Fund in weekend negotiations, was the biggest since G20 leaders threw money at the global economy following the collapse of Lehman Brothers in 2008.
"We have closed ranks to save the euro," French Finance Minister Christine Lagarde told Europe 1 radio after the 11-hour meeting in Brussels ended in the early hours of Monday as Asian markets opened.
The "shock and awe" scale of the package of standby funds, loan guarantees, liquidity measures and central bank bond purchases surprised financial analysts and the euro rose some 2 per cent, while stocks in Europe and Asia firmed.
The FTSEurofirst 300 index of top European shares surged by 3 per cent in early trading, after falling 8.9 per cent last week to a seven-month low on Friday. The Asian rally was more modest compared to last week's losses.
In a move sought by anxious European banks, the European Central Bank will buy euro zone government bonds in a reversal of its long-standing reluctance to use what many economists call the "nuclear option" under market pressure.
"The EU has taken a decisive action to stamp out the speculative attack against the euro and this should be sufficient to bring some calm into the market," said Klaus Wiener, head of research at Generali Investments.
German Chancellor Angela Merkel, who for months resisted pressure to aid Greece with a debt crisis that eventually sent market tremors around the world, said the measures were necessary to guarantee the future of the euro.
"This package serves to strengthen and protect our common currency," she told reporters in Berlin. "We are protecting people's money in Germany."
Merkel consented to the massive rescue plan after her centre-right coalition lost a regional election on Sunday and US President Barack Obama and French President Nicolas Sarkozy telephoned her to ensure Europe would take the necessary steps to support the euro and keep global liquidity flowing.
CONCERTED ACTION
In concerted action, the US Federal Reserve reopened currency swap lines with several central banks to try to assure markets of dollar liquidity and the European Central Bank said it would buy government debt to steady investor nerves.
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Src: Economictimes