Deadlock broken; buying debt in primary markets authorised.
Euro zone leaders widened the scope of their rescue fund to stamp out the debt crisis, authorising officials to buy debt in primary markets, while cutting the cost of bailout loans to Greece.
“This is an important message on the political pledge of the euro members to fight for the euro’s stability,” German Chancellor Angela Merkel said in Brussels after the summit. “Everyone had to make a contribution. I hope this will also be a good message to the world in terms of the euro as a major currency.”
The agreement broke a deadlock as European policy makers sought to extinguish a crisis that has raged for more than a year and frustrated unprecedented efforts to contain it.
Bond yields in Greece and Portugal touched euro zone records this week, debt ratings of Greece and Spain were cut, and the euro recorded its biggest weekly drop since the first week of 2011.
The officials rejected Ireland’s bid for relief as Prime Minister Enda Kenny refused to yield to calls to raise its company tax rate of 12.5 per cent. Leaders will allow the facility to spend its ¤440 billion ($611 billion) capacity, though it won’t be used to finance bond buybacks of debt-strapped states. A final agreement is slated for a summit on March 24-25.
The accord was unexpected, coming at the end of a session that began after 5 pm, following daylong talks among the 27 European Union heads in response to the uprising in Libya. This week, officials in Germany and France said they didn’t expect a comprehensive pact till the end-of-month summit.
Firewall
“I’m positively surprised, for a change,” said Andrew Bosomworth, money manager at Pacific Investment Management.
While the fund would not be large enough to fund bailouts should the turmoil spread to Italy and Belgium, “the agreement contains important elements of a firewall” that could prevent the crisis from worsening.
The new bond facility would help other indebted nations by acting as a backstop should a Greek restructuring spook markets and threaten to derail government bond auctions, he said.
An initial deal last night, on a plan to tighten economic cooperation and boost competitiveness, committed nations to enact budget rules into law, a core German demand, and paved way for the final agreement at the end-of-month summit.
In return for the euro zone’s acceptance of her conditions on controlling debt, Merkel swung Europe’s biggest economy behind plans to allow greater flexibility and firepower in the EU rescue fund, the European Financial Stability Facility.
