EU ministers hold emergency talks

Contagious crisis

Leaders of the 16 eurozone countries decided on Saturday to set up urgently a financial-defence plan to shield their shared currency against further attack.

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Sunday’s hastily arranged meeting of all 27 EU members is a clear indication that the crisis that emerged in Greece is starting to affect other eurozone countries.

In particular, Spain and Portugal are beginning to show the same signs of trouble that Greece first experienced three months ago.

An EU diplomat told the AFP news agency that a kind of “bank” would be set up with unused funds from the bloc’s budget, which would then serve as “base capital on which to borrow 60-70bn euros (up to $90bn) on the bond market”.

Guarantees offered by member states would help keep the interest rates low, the source said.

That translates into a mini-European version of the International Monetary Fund.

The source said the move could be supported by a “gesture” from the European Central Bank, presented as a signal that it would intervene to buy euro governmental debt, what traders and analysts refer to as the “nuclear” option.

Michel Barnier, Europe’s financial services commissioner, said “you can count on the central bank to play its part as ever”, as the world’s central bankers gathered for a conference in the Swiss city of Basel.

The bankers were meant to discuss such issues as the end of special measures taken during the recent global financial crisis, as well as longer-term issues surrounding monetary system reforms.

But their meetings may now turn into a crisis sitting as Greece’s debt woes expand into one of global proportions, pushing down Europe’s single currency and world stocks sharply down.

Taken together, the latest bid to stabilise what Silvio Berlusconi, the Italian prime minister, has described as a “state of emergency” for the 16 countries.

Both Berlusconi and Nicolas Sarkozy, the French president, pulled out of World War II commemorations in Moscow to drive efforts.