$1 trillion rescue halts euro slide
But cash injection is not a cure-all, analysts predict
BRUSSELS — A bold $1 trillion rescue by the European Union halted the slide of the euro yesterday and sent markets soaring worldwide in a gambit that may ultimately be seen as the moment Europe truly became a union.
The sweeping cash injection was greeted with euphoria on Wall Street, where stocks rocketed to their biggest gain in more than a year.
Still, the package did not resolve the basic dysfunction at the heart of Europe’s monetary union: Governments can still spend recklessly and saddle their partners with the bill.
The approval of a rescue package followed weeks of indecision that hammered the euro and sent world markets plunging on fears Europe’s debt contagion could spread well beyond Greece, where the crisis began several months ago.
“For once the scope of actions unveiled dwarfed previous leaks and speculation. This is shock and awe Part II and in 3-D,’’ said Marco Annunziata, the chief economist at UniCredit Group.
“Europe has unequivocally said, ‘We will defend the euro’s integrity,’’’ said Oliver Pursche, executive vice president at Gary Goldberg Financial Services in Suffern, N.Y.
After frantic talks lasting into the early hours yesterday, European officials agreed the 16 euro nations would put up $572 billion in new loans and $78 billion under an existing lending program. The International Monetary Fund will pump in another $325 billion, for a total package of nearly $1 trillion.
The European Commission is to raise the money in capital markets, using guarantees from member governments, and lend it to crisis-stricken countries so they can pay their bills.
Many questions were left unanswered, such as how the money would be spent.
The euro bounced back from 14-month lows around $1.25 on Friday to about $1.30 yesterday, reversing the ominous slides and sense of panic from last week.
Analysts warned, however, that the emergency bailout fund would do nothing to reverse Europe’s soaring public debt — and could even worsen it.
“The last thing you give a drunk is another drink,’’ said Jeremy Batstone-Carr of Charles Stanley stockbrokers. “The process of providing a bridging facility for Greece and possibly other indebted nations will add significantly to regional debt and deficit ratios without actually solving the underlying problem.’’
The core problems are near-zero economic growth, high unemployment, and governments unwilling to take painful steps to get people to work more and longer.