Ministers approve €700bn EU rescue fund
EUROPE'S finance ministers announced a new €700bn rescue fund to fight the European debt crisis and protect the euro last night.
Unlike previous efforts, the ministers have now set up a permanent fund to help countries who get into financial trouble.
Europe's finance ministers, including Michael Noonan, agreed the measures last night after several hours of talks.
The new fund, the European Stability Mechanism (ESM), will only come into effect from mid-2013 and does not apply to Ireland as this point.
Ireland is borrowing money under an older temporary fund, known as the European Financial Stability Fund (EFSF).
The new fund will also enable countries to default on their debts in a controlled way and negotiate with their creditors. But this will only be allowed after analysis of how much debt a country is burdened with.
The right to default and open talks with creditors -- usually banks -- will not be automatic.
Europe's full package to stamp out the debt crisis fell short of the demands made by some countries, but is still a radical departure.
One thing the fund won't be allowed to do is buy up a country's bonds on the open market, thereby reducing the burden of their debts. This type of activity will remain with the ECB.
Germany, the biggest contributor to last year's rescues of Greece and Ireland, insisted on tough sanctions against runaway budget deficits. These new sanctions will also form part of the new fund.
The ESM will be formally approved by the individual EU state leaders later this week, and, once it comes into effect, will be monitored by the European Parliament.
Reacting to the changes, billionaire investor George Soros said they would result in a "two-speed" economy dominated by northern European exporting powers like Germany with southern Europe lagging behind.
"This will generate resentments that will endanger the EU's political cohesion," he added.
Finance ministers confirmed that the ESM will enjoy what is known as preferred creditor status, meaning it always gets repaid by countries ahead of private lenders.
Future aid will also be cheaper than the 5pc rate set for Greece and 5.8pc for Ireland last year. Greece has since won a one percentage-point reduction and longer repayment period, while Ireland is pressing for a better deal.