EU Leaders Adopt Bigger Bailout Fund

Posted January 30th, 2012 at 5:55 pm (UTC-5)
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European Union leaders have approved a new, permanent $661 billion bailout fund and agreed to strict spending limits to avoid future debt crises.

EU heads of state held their first summit of the year Monday in Brussels, where they immediately saw a reminder of the continent’s financial woes — Belgian workers on strike for the first time since 2005 to protest spending cuts.

The new economic rescue fund takes effect in July, a year earlier than originally planned. Three of the 17 countries that use the euro currency — Greece, Ireland and Portugal — already have been forced to secure international bailouts, with Greece now seeking a second aid package.

Also Monday, 25 of 27 EU nations agreed to sign a new treaty aimed at stopping governments from overspending. Those that go over debt ceilings will face sanctions. Only Britain and the Czech Republic refused to sign the deal. Britain rejected it last month and Czech officials said their parliament has to ratify it first.

EU leaders are striving to avoid what economic experts predict could be a moderate recession during the first half of 2012.

European economic recovery has been slow, and the possibility of Greece defaulting on its debts in March frustrates EU leaders. They accuse the Greek government of being too slow to implement more spending cuts.

Despite extended negotiations with its bond holders, Greece has so far failed to reach a deal to cut in half the amount of money it owes them. That could reduce the Greek debt by $130 billion. But talks are hung up on the interest rate Greece would pay on the new bonds issued to replace the old ones.

Luxembourg Prime Minister Jean-Claude Juncker, who heads the group of Eurozone finance ministers, says a German proposal for a commissioner to oversee Greek spending is unacceptable.