Finance ministers from the euro zone last night sought to restore financial markets' confidence by agreeing how to deploy a massive programme if needed by struggling members.
Ministers from the 16 countries that use the euro finalised arrangements for a Special Purpose Vehicle (SPV) to raise up to €440 billion to lend to euro zone countries that run into Greek-style payments problems.
'There is no uncertainty left about the euro zone's capacity to provide conditional aid to countries in fiscal trouble,' European Economic and Monetary Affairs Commissioner Olli Rehn told a news conference after talks in Luxembourg. Jean-Claude Juncker, who chaired the meeting, said the SPV would be operational this month.
A statement issued by the ministers said governments would make bigger commitments than first planned to ensure smooth operation and to justify a top credit rating.
The SPV is essentially a company that will be able to raise money on markets by issuing bonds thanks to loan guarantees provided by governments of the euro zone. Member states hope it will never be mobilised but that its existence will convince markets that default fears are unfounded.
Juncker and Rehn also welcomed additional austerity measures announced in mid-May by Spain and Portugal, which markets see as potential troublespots after Greece, the first country in the euro zone's 11-year history to require a financial rescue.
International Monetary Fund chief Dominique Strauss-Kahn, who joined the ministers, said the anti-contagion plan - a safety net worth up to €750 billion once an IMF commitment of €250 billion is included - was a 'good step forward'.
The finance ministers also discussed ways of tightening surveillance of national budgets and applying earlier and tougher sanctions against countries that breach EU deficit limits or misrepresent their statistics, as Greece did.
EU President Herman Van Rompuy said they agreed in principle on the need to subject national budget strategy to greater peer scrutiny and to find more effective penalties for countries with wayward or potentially wayward public finances.
Today, British Chancellor George Osborne rejected European Union demands to vet the Britain’s budget before it is presented to MPs.
Answering questions in the Commons for the first time since taking over the lead Treasury job, Mr Osborne gave MPs an 'absolute assurance that I would not sign up to that'.
