Stock markets and the euro currency rebounded on news of an enormous European Union rescue package to combat a growing financial crisis in the region. The plan, combined with support from the International Monetary Fund, is worth about a $1 trillion.
Global markets and the euro rallied, buoyed by the news of the plan announced by European Union finance ministers in Brussels. The rescue package includes $75 billion in loans to troubled members available from the European Commission, the E.U. executive arm.
Another $570 billion would come through bilateral loans from members of the 16-nation eurozone. If necessary, the International Monetary Fund could also kick in as much as half of the total E.U. contribution.
At a news conference in Brussels, European Monetary Affairs Commissioner Olli Rehn said the agreement sent a clear signal of European support for the decade-old euro currency.
"All in all, with the fiscal efforts by E.U. member states, the financial assistance of the [European] Commission and by the member states and the actions taken to date by the [European Central Bank] proves that we shall defend the euro, whatever it takes," said Rehn.
In Paris, French Finance Minister Christine Lagarde said she was pleased at news of the surging markets.
Lagarde told Europe-1 radio the new stabilization plan was the result of unprecedented coordination by major financial players, including the European Central Bank, the G-7 and the G-20. She said it sent a signal the euro would resist.
Markets plummeted last week, reflecting fears that Greece's fiscal crisis could spread to other vulnerable European nations. The situation was so serious that European leaders called for the new rescue package to be in place by the time stock markets opened Monday.
Analysts have faulted the European Union for not taking swift, bold action to staunch the spreading panic. Karel Lanno is chief executive for the Center for European Policy Studies in Brussels.
"We have been calling for action, the creation of a stability fund since February," he said. "Now we are three months later and they have finally put it into motion - meaning a lot of damage has been done in the meantime. They could have acted much earlier," said Lanno.
At a forum in Brussels, permanent E.U. President Herman van Rumpoy said the rescue package is only a first step.
"Our problem is that inside the eurozone there are huge problems in economic development," he said. And we have to tackle these divergences [by] having more convergence in economic policy and economic development. And that is why we have to make more effort in the coming years to tackle those divergences," van Rumpoy said.
But he says the eurozone is financially healthy.
"The eurozone has fundamentals, which are sound, compared to other countries. Our budget deficit is almost half of what is going on in other important countries in the world economy. Second, we have a balance of payments that is almost in balance," said van Rumpoy.
Analyst Lanno says what is needed is a more comprehensive strategy to prevent future crises.
"We need to have a holistic approach of the economic governance of the eurozone. It is not only this thing [the rescue plan] - it requires a whole redesign of how the institutions function, what ito be done at the macro level, the micro level," Lanno said.
Lanno believes it will be several years before the European Union recovers from the crisis and can show the markets it is in control of its finances.
