Economy

Could huge safety net be strong enough to protect euro?

By Wu Liming (Xinhua)
Updated: 2010-05-11 14:50

Previously, the ECB, whose operation is independent from the EU headquarters, has been extremely reluctant to take that step.

European laws prevent the ECB from buying debt directly from governments. However, it can bypass this restriction by buying debt second-hand from banks.

The size of the package and the ECB's decision reflected the growing sense of urgency in the EU as well as around the world that a sovereign debt crisis could rapidly sweep global markets.

The overall package was thus described as a series of "far-reaching steps" by IMF managing director Dominique Strauss-Kahn.

"The fiscal efforts of the EU member states, the financial assistance by the (European) Commission and by the member states (and) actions taken today by the ECB proves we shall defend the euro whatever it takes," EU Economic and Monetary Affairs Commissioner Olli Rehn said.

The Greek debt crisis has evolved into the most severe crisis the euro zone has ever encountered since the single currency was created in 1999. Moreover, the crisis might spread to other weak eurozone states like PIGS countries, or even could endanger the global economy at large.

Because of this, leaders from the 16 euro zone states reached consensus on Saturday in Brussels, vowing to "take every means" to safeguard the stability of the euro.

The 27-nation EU boasts a powerful economy equivalent to that of the United States. The euro has played a vital role in the global economy.

As the euro has become the world's second reserve currency next to the US dollar, preserving a stable euro benefits the global economy.

Right after the announcement of the huge package, the G20 immediately announced their support, and central banks around the world joined the coordinated effort.