EU To Set Up Credit Crisis Prevention Fund

Following the EU/IMF’s $140b bailout of Greece last week that came with austerity measures which raise taxes and cut pay for 20% of the Greek workforce, there was rioting in Greece and market turmoil globally. The European Union has now announced a plan to set up a fund that would help prevent the problem from spreading through the 16-country EU. More on this from a Bloomberg report below:

European leaders agreed to set up an emergency fund to halt the spread of Greece’s fiscal woes, seeking to prevent a sovereign debt crisis from shattering confidence in the 11-year-old euro.

Jolted into action by the sliding currency and soaring bond yields in Portugal and Spain, leaders of the 16 euro countries said the workings of the financial backstop will be hammered out before Asian markets open late tomorrow European time.

European officials declined to disclose the size of the stabilization fund, to be made up of money borrowed by the European Union’s central authorities with guarantees by national governments.

The extra yield that investors demand to hold Greek, Portuguese and Spanish debt instead of benchmark German bonds rose to euro-era highs yesterday. The premium on 10-year government bonds jumped as high as 973 basis points for Greece, 354 basis points for Portugal and 173 basis points for Spain.

The political leadership of the $12 trillion economy also signed off on a 110 billion-euro ($140 billion) aid package for Greece negotiated by finance ministers last week. So far nine governments have cleared the way for funds to be sent to Athens.

Germany, the biggest contributor with as much as 22.4 billion euros over three years, fell in line yesterday with endorsements in the lower and upper houses of parliament. A group of German academics filed a lawsuit to try to halt the payout. A court today rejected the challenge.