The Euro awaits financial rescue

Team Europe: Financial Rescue, is what today’s events in Brussels were supposed to be.

But tonight EU finance ministers are facing a race against time to have a package of support measures to underpin the euro before major markets open tonight.

After acting too late on Greece, other indebted European nations started to feel the rough hand of a panicked market at the end of last week.

European leaders were shown some pretty shocking graphs on Friday depicting the rapid escalation in the cost of borrowing for Europe’s debt-ridden periphery countries. European bank shares too have been battered over the past week. President Obama has been on the phone to Chancellor Merkel, and publicly expressing his concern about Europe’s financial markets.

So today European finance ministers gathered in Brussels for an emergency meeting to thrash out a European Stability Mechanism to protect the euro and its member countries from what the Swedish finance minister called the ‘wolf-pack’ of speculators.

The French finance minister muttered “I feel under siege” on the way in. Most finance ministers had not seen the plans of the European Commission at 3pm. Plan A is an extensive series of bond guarantees that could be worth hundreds of billions of Euros. That would calm markets, but may infuriate citizens of less profligate Eurozone nations. Certainly the finance ministers of non-Eurozone countries, like Britain, were adamantly against funding this type of plan. As Alistair Darling said: “it’s a matter for the Eurozone”.

Plan B is an attempt to extend an existing 50bn euro rescue facility (currently used by IMF aid recipients Latvia, Romania and Hungary) by 60bn Euros. This so-called “balance of payment” facility means that cheap debt, rated at AAA, guaranteed by the EU as a whole can be raised for troubled countries. The issue is that this does create an extra theoretical exposure for the UK of about 7.5bn Euros. It is likely to be agreed to tonight by Mr Darling, having consulted George Osborne and Vince Cable. Would a different result have emerged with Osborne at the helm?

So now we wait. Adding to the tension, Germany’s finance minister disappeared to hospital after some sort of allergy, the German government appears to have lost its majority in the Upper House of the German legislature. And I almost forgot Britain’s constitutional curiosities.

Surely the EU finance ministers are going to come up with more than this? Have they been pressurising the ECB for some sort of mass injection of liquidity? Is the ECB going for the atomic option of creating money, and buying EU government debt directly. The so-called ‘wolves’ are waiting.