ECB to buy bank debt in secondary market, official says
By Greg Robb, MarketWatch
A previous version of this story misstated the possible contribution from the International Monetary Fund. The story has been corrected.
WASHINGTON (MarketWatch) -- European finance ministers and central bankers agreed late Sunday on a new loan program that could top 750 billion euros ($970.6 billion), designed to keep the Greek debt crisis from spreading to other vulnerable European countries.
European finance ministers hammered out a safety net worth as much as 500 billion euros for struggling governments. The International Monetary Fund could contribute an additional 250 billion euros, officials said.
The deal came after a full day and night of closed-door meetings in Brussels. The finance ministers held a joint press conference shortly after the opening of Asian markets -- well after midnight local time -- to discuss the program.
European ministers also hit back at speculation that the euro zone would be forced to shrink if the crisis continued.
"We shall defend the euro whatever it takes," said Olli Rehn, the European Union's commissioner for economic affairs.
The package was designed to ease market fears that Greece, Portugal or Spain will have to restructure their debt, a move that would have hit European banks particularly hard.
The new EU program includes 60 billion euros in emergency lending that would be available quickly.
"That would be first in line to be used," Rehn said.
The leaders also agreed to set up a special purpose vehicle of 440 billion euros for new loans, though it will likely take "some weeks" to set this program up, Rehn said.
Spain and Portugal have agreed to take more steps to cut their budget deficits.
"These are strong measures that will help to secure global economic and financial stability, and preserve the global economic recovery. Implementation of actions to put public finances on a sustainable footing is key to restoring economic health in Europe," Dominque Strauss-Kahn, the IMF managing director, said in a statement.
Carl Weinberg, chief economist at High Frequency Economics, said it was still not clear how the money will be used, when the facilities will be operational, and how decisions to allocate funds will be made.
"The package is still too vague to understand," Weinberg wrote in a research note to clients.
European ministers were forced to act after concern intensified last week that European banks would be damaged from sovereign-debt restructuring. Some feared that the global economic recovery was too fragile to withstand the blow if European banks pulled back from lending.
In Washington, administration officials appear to share this concern. They have said they are watching the European financial situation closely.
