Greece loan instalment approved
Published 29/11/2011 | 12:22
Eurozone ministers have thrown a lifeline to Greece as they scrambled to prevent financial chaos from spreading further.
The monthly meeting of 17 nations was dominated by attempts to keep Greece afloat and find enough money to coat a veneer of credibility over Europe's rescue fund. It came on the third day in a row that Italy has taken a beating in the bond markets, with investors growing increasingly wary of the country's chances of avoiding default.
The finance ministers approved the next instalment of the Greece's bailout loan - 8 billion euro (£6.8 billion). Without that money, Greece would have run out of cash before Christmas, unable to pay employees or provide services.
The instalment is part of a 110 billion euro (£94 billion) bailout from eurozone nations and the International Monetary Fund that Greece has been dependent on since May 2010.
The new cash came after the EU demanded, and received, letters from top Greek political leaders pledging their support for tough new austerity measures.
In the latest sign of trouble, Italy was forced to pay an excruciatingly high interest rate on an auction of three-year debt. Demand was strong, but the 7.89% rate was nearly three percentage points higher than last month, an enormous increase. The auction raised 7.49 billion euro (£6.4 billion)
Italy is too big for Europe to rescue. If Italy were to default, the fallout could break up the currency used by 322 million people and send shock waves throughout the global economy.
At the meeting, the finance ministers were discussing ideas that until recently would have been taboo: countries ceding additional budgetary sovereignty to a central authority - EU headquarters in Brussels.
Strengthening financial governance is being touted as one way the eurozone can escape its debt crisis, which has already forced Greece, Ireland and Portugal into international bailouts and is threatening to engulf Italy, the eurozone's third-largest economy.
Aside from the money for Greece, some ministers acknowledged they probably would not reach their more important goal of increasing the leverage power of the European Financial Stability Facility. The fund, which is supposed to be a firewall against financial contagion swallowing up nation after nation, needs to be expanded from 440 billion euro (£375 billion) to something like 1 trillion euro (£854 billion).