European finance ministers announced on Monday that a bailout slush-fund will be established to halt the spread of the economic turmoil throughout Europe.
The joint EU-IMF bailout fund provides €750 billion, aimed at shoring-up the perilously perched economies of Spain and Portugal in the wake of the Greek financial crisis.
Under the three-year aid plan, the EU Commission will make €60 billion available while countries from the 16-nation eurozone would promise bilateral backing for €440 billion.
The IMF would contribute an additional sum of at least half of the EU’s total contribution, or €250 billion, Spanish Finance Minister Elena Salgado said.
“We are placing considerable sums in the interest of stability in Europe,” said Ms Salgado after the talks, which were called on Friday night amid concerns that the financial crisis sparked by Greece’s runaway debt problems had begun to spread to other fragile economies.
The news came as the international Monetary Fund approved a €30 billion loan to Greece, offered in conjuction with 15 other eurozone countries as part of a larger €110 billion rescue package.
It’s the biggest cash injection the IMF has ever invested in a single country and aims to shore-up global financial markets, which took a battering late last week with news of economic and political upheaval in Greece.
In exchange, the Greek government is expected to implement a series of strict austerity measures, which have in turn further fuelled the domesitc upheaval.
The €30 billion loan forms part of the the historic €110 billion financial aid package to bail out Greece, announced by the 15 other eurozone nations late last week.
On Friday, European leaders cleared the way for the release of €80 billion of European Union funds over a period of three years.
Under the deal’s terms, Greece will cut its Budget deficit from a record 13.6 per cent of GDP last year, to 8.1 per cent this year.
Greece has also agreed to bring its deficit under the European Union ceiling of 3 per cent by 2014.
The first loan payments under the bailout package will be made available to Greece in the coming days to meet a May 19 deadline for repaying its debts, according to statements made by the Greek Prime Minister.
“This will allow us to implement our (austerity) programme and our reforms,” he underlined.
These funds, he added, will “help us to implement without everyday’s uncertainty in the international markets, the stabilisation and growth programme for our economy.”
However the Greek Prime Minister indicated that in supporting Greece the European Union was also addressing the broader stability of the eurozone.
“These decisions show that we are going to work all together not to let international speculation acting without control in the markets, to take Europe out of the crisis and contribute substantially to the world economy’s recovery,” Papandreou said.