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EU sets up permanent debt crisis fund
Fri, 17 Dec 2010 03:07:50 GMT
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European Commission President Jose Manuel Barroso (L) and European Union (EU) Council President Herman Van Rompuy
As Europe's economy tumbles, European Union leaders agree to set up a permanent mechanism in 2013 to bailout any debt-ridden members of the 16-member euro zone.

Leaders of the 27 European Union countries, who held their record seventh summit so far this year in the Belgium capital Brussels on Thursday, approved a two-sentence amendment to the EU treaty at Germany's request to pave the way for creation of a European Stability Mechanism (ESM) in an effort to tackle financial crises effective June 2013, Reuters reported, quoting European Council President Van Rompuy.

The ESM, which replaces a temporary European Financial Stability Facility (EFSF) crafted in May, will require changes to EU's Lisbon Treaty, and has stipulated a string of strict measures for granting loans to debt-laden member states, with private sector bondholders sharing the cost of any write-downs.

However, the leaders brushed aside growing concerns that the existing rescue fund needs an increase in order to financially buttress countries such as Spain and Portugal if they plunge into a Greece-style economic bankruptcy.

"The heads of state and government of the euro zone stand ready to do whatever is necessary to ensure the stability of the euro zone as a whole," said Rompuy as he sought to ease worries that Spain and Portugal might need EU/IMF bailouts after Greece and Ireland.

Meanwhile, the head of the International Monetary Fund (IMF) Dominique Strauss-Kahn expressed deep concerns over the slow pace of economic growth in the 16-member euro zone, blaming the slow recovery on what he referred to as a piecemeal approach adopted by EU in dealing with the ongoing crisis.

"I'm worried and that's why I'm urging the Europeans to provide for a comprehensive solution, because this piecemeal approach obviously doesn't work," Strauss-Kahn noted.

The decision comes as the brewing sovereign debt crisis pummeling European countries threatens to unleash a domino effect after Greece and Ireland yielded to accept EU/IMF rescue packages.

The euro zone, comprising of 16 European Union member states that use euro as their official legal tender, entered its first recession in the third quarter of 2008 following the global financial meltdown, which broke out in early 2007.

The financial crisis wreaked havoc in Greece, forcing the EU and the IMF to pay the debt-laden country a 110-billion-euro bailout in an effort to salvage its economy.

Barely six months into the Greece bailout, another economic meltdown broke out in Ireland, as the country's banking sector hit rock-bottom early in November.

The contagious crisis has cast a harsh shadow of doubt over the long-term survival of the euro zone's single currency and threatens to unleash a domino effect that could jeopardize other vulnerable economies in Europe.

HA/MB

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