EU to double bailout fund for non-euro members

March 20th, 2009 - 8:57 pm ICT by IANS  

Brussels, March 20 (DPA) European Union (EU) leaders Friday agreed to double to 50 billion euros ($67.7 billion) a fund designed to prop up the currencies in member states which do not use the euro, EU diplomats said.
At their regular spring summit in Brussels, EU leaders agreed to a joint statement welcoming the European Commission’s, the executive body of the EU, “intention to present a proposal to double the ceiling for the union’s support facility for balance-of-payments assistance,” sources close to the meeting told DPA.

At the same time, top officials rejected reports that the European Central Bank had set up a similar facility to bail out countries which use the euro and which face the risk of default.

“This help cannot be given to euro members: the EU treaty forbids it. It cannot happen that a euro country defaults,” the influential head of the eurogroup, Luxembourg premier Jean-Claude Juncker, said as he arrived at Friday’s meeting.

The support facility is a special EU system for borrowing money on the international markets to help non-euro-members keep their national finances from default. It is handled by the European Commission.

The leaders’ decision follows a call from key figures, including Juncker and the head of the commission, Jose Manuel Barroso, to double the fund in case further countries need it.

And it strengthens immeasurably the latest draft of the summit declaration, drawn up overnight to Friday, which had simply said that EU members should “keep under review” the size of the fund.

It is the second time in three months that the bloc has doubled the size of its bailout system, which until the autumn was capped at 12 billion euros.

Since then, the EU has pumped over nine billion euros from the fund to keep Latvia and Hungary afloat, while Romania has asked for some seven billion euros in support.

Politicians who backed a further doubling of the facility said that it was important to send a strong signal that the EU was ready to bail out its weakest members.

“The resources in the balance-of-payments fund must be made ready,” Austrian Chancellor Werner Faymann said as he arrived at Friday’s meeting.

But others warned that a decision to double the fund immediately could spook markets, as the currently-known demands for help are well below the fund’s limit of $25 billion - leaving the question open of why the limit should be lifted.

Latvia is already reported to be preparing a demand for an even larger bailout package, while Bulgaria is also rumoured to be planning an appeal to the fund.

Bulgarian Prime Minister Sergei Stanishev said Thursday that his country did not need a bailout.

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