At the end of an extraordinary 10-hour meeting, finance ministers from the European Union Monday agreed to provide $560 billion in new loans and $76 billion under an existing lending program to those eurozone countries that need it.

The International Monetary Fund will chip in another $320 billion to safeguard Europe's common currency.

European leaders said they hope the $957 billion program -- the boldest financial measure in the history of the bloc -- will bring stability to a market that has has been troubled by a near-default of Greece, a weakening euro and steeply declining stock markets.

Reversing its earlier position, the European Central Bank announced Monday that it would buy government and corporate debt to underpin the EU package. The U.S. Federal Reserve and other global central banks said they would inject more dollars into the system to enable interbank lending.

Stock markets jumped in reaction to the moves, with European, U.S. and Asian markets, as well as the euro, surging.

The move was also welcomed in Washington: U.S. President Barack Obama, worried that the European crisis could pull down the global economy, had telephoned German Chancellor Angela Merkel and French President Nicolas Sarkozy over the weekend to urge them to fight for a bold rescue package.

That doesn't mean the crisis is over. Officials still fear that the Greek crisis could infect similarly indebted countries like Portugal, Spain, Ireland and maybe even Italy.

The southern European economies not only suffer from high deficits but also from an inherent structural economic weakness compared to northern countries.

Greece has been forced to adopt stringent austerity measures that include rising taxes, cutting pensions and freezing salaries in order to unlock a personalized $150 billion rescue fund.

Other EU members in southern Europe will now come under increasing pressure to as well sort out their deficit and increase their competitiveness in order to protect the region from further crises in the future.

Pushing through those reforms won't be easy. In Greece, the austerity measures sparked social unrest and any government interested in getting re-elected will try to avoid drawing the anger of the public.

Germans on Sunday punished Merkel's conservatives in crucial state elections in North Rhine-Westphalia, the country's most populous state. Analysts say voters were angry at Berlin's decision to bail out Greece, a move, polls indicate, opposed by the vast majority of Germans.

Analysts across Europe lauded the aid package as one that prevents further panic in the short and medium runs but they remained cautious when looking at long-term prospects.

The debt remains in the system, so the EU with the massive aid package hasn't saved itself, experts say. It has simply bought itself more time.

earlier related report
Outside View: EU bailout
by Peter Morici
College Park, Md. (UPI) May 10, 2010 - By establishing a nearly $1 trillion fund to bailout Greece and aid other struggling governments, Germany and other strong European states are chasing a dream -- a single European currency and broader European unity -- that may have no place in reality.

More budget crises will follow, if not in Greece then in Portugal, Spain, or perhaps Ireland or Italy, because the euro is simply not backed by a strong central government.

Although the currency is managed by a European Central Bank, European states have not ceded to the European Union enough power to tax and spend.

Absent a central government that can tax citizens and businesses in richer nations, such as Germany, to shoulder some of the costs of pensions, healthcare and other social benefits in poorer nations such as Greece, fiscal stability in the less wealthy states and a single currency is simply not possible.

Since the late 19th century, the Europeans have been two generations ahead of the Americans on social policy and much more aggressive in assuring that each citizen, no matter his station in life, enjoys comprehensive healthcare and a significant measure of economic security.

With the commercial integration that followed World War II through the European Common Market, composed initially of six nations, and the broader European Free Trade Area, which encompassed most of the non-communist states, public aspirations for benefits in poorer nations and regions, such as Portugal, Greece and southern Italy, grew to rival those in richer states.

Politicians responded by expanding and enriching social safety nets but costs rose, too, as doctors, teachers and the like, expected to enjoy salaries and benefits more comparable to their colleagues further north.

The price tag outran the ability of employers and governments to pay and inflation and national budget headaches followed.

Until the euro was adopted in 1999, southern nations would let their national currencies gradually fall in value against the German mark and other currencies of richer nations.

That boosted exports and tax revenues but the pensions paid by Portugal, Greece and others became worth less if spent in Germany and other northern jurisdictions. Conversely, these Mediterranean states became great places for Americans and northern Europeans to vacation and retire.

After 1999, national governments in Spain, Portugal and Greece, and to a lesser extent more prosperous Italy, faced the difficult prospect of telling their citizens they couldn't retire as young, enjoy the same health benefits or employment security as the wealthier French, Germans and Dutch.

Instead, these governments borrowed heavily and now face severe retrenchment and perhaps eventual bankruptcy.

The Teutonic austerity Germany and others will compel to bail out these foundering governments will shatter the myth that the welfare state can be provided equally across Europe, or Mediterranean states will simply quit the euro and take with them the Franco-German dream of European Unity.

Before we chasten our warm-water friends too harshly for living beyond their means, remember northern reluctance to share wealth through a strong central government has much to do with their predicament.

In the United States, the states can't print money and some spend more aggressively than others but most social benefits are substantially assisted by Washington, which can tax New York to subsidize Mississippi.

Unless Germans and others are willing to let Brussels tax them as necessary to equalize social spending between richer and poorer states, the euro will remain an uncertain adventure and European unity a Utopian dream.

(Peter Morici is a professor at the Smith School of Business, University of Maryland, and former chief economist at the U.S. International Trade Commission.)

(United Press International's "Outside View" commentaries are written by outside contributors who specialize in a variety of important issues. The views expressed do not necessarily reflect those of United Press International. In the interests of creating an open forum, original submissions are invited.)

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