Europe Tries to Calm Fears Over Greek Debt Crisis

(May 8) -- Scrambling to come to Greece's rescue, European leaders who worked through the night in Brussels say they'll set up an emergency fund by the time markets open Monday, to stop Athens' spiraling debt from sabotaging the whole euro currency.

"We will defend the euro, whatever it takes," European Commission President Jose Barroso told reporters after meeting in Brussels with leaders from the 16 countries that use the euro. His comments and those of other officials were carried by several news agencies.

There's no word yet on the size of the stabilization fund, which will be comprised of money borrowed from the European Union's central authorities, with guarantees from individual governments. Finance ministers are meeting again on Sunday in Brussels to work out the details.

"When the markets re-open Monday, we will have in place a mechanism to defend the euro," French President Nicolas Sarkozy said. "If you don't think that's significant, you haven't been to many EU summits."

The euro's value dropped 4.3 percent this week, triggered by global fears that Greece's debt crisis could drag down the other 15 countries which use its same currency. The same fears have sent bond yields in other poor countries like Spain and Portugal soaring, reflecting that investors have less confidence in those governments' ability to keep paying interest on their debts. The mess threatens to destabilize the whole world's economy, fresh out of recession.

It's also the biggest test for the euro currency, which began trading 11 years ago and has been in circulation for just nine. France and Germany in particular have invested much in the shared currency's prestige and survival.

"We will not let others undo what generations have created," Sarkozy said.

Friday's euro zone summit in Brussels morphed into a crisis management session with over Greece, and dragged long past midnight. Leaders approved a $100 billion bailout plan for embattled Athens, after its details were approved by nine countries' legislatures earlier in week. That sum will be supplemented with another $40 billion from the International Monetary Fund.

The hope is that the rescue plan can stabilize Greece in the short term, and prevent it from defaulting on its debts. Athens' budget deficit is 13.6 percent – more than four times what EU rules normally allow. Unemployment is near 20 percent, and the country's total debt – forecast to hit $400 billion this year – exceeds the whole yearly output of its economy.

One of the conditions of the EU-IMF bailout is that Greece reel in its spending and pay down its debts. Greek parliament passed a plan Thursday to do so, but it's sparked outrage among ordinary workers who fear its crippling tax hikes and wage cuts. And while the country slides into economic disarray, social unrest has erupted as well, with three people killed earlier this week when protesters set fire to a bank.

"The program adopted by the Greek government is ambitious and realistic," EU President Herman Van Rompuy said. "It addresses the grave fiscal imbalances, will make the economy more competitive, and will create the basis for stronger and more sustainable growth and job creation."

In addition to the emergency fund being set up this weekend, Van Rompuy said euro zone members would also take Greece's lessons to heart and take steps to improve their own budget deficits and economic management.

"All heads of state and government of the euro area are fully aware we face a serious situation," he said. "We agreed that the current market turmoil highlights the need to make rapid progress on financial market regulation."