Europe and IMF in euro rescue bid

Central banks around the world yesterday joined the co-ordinated effort to prevent Europe's debt crisis from derailing the global rebound from recession.

The US Federal Reserve re-opened a programme to ship billions of US dollars overseas to try to pump more short-term cash into the financial system and make sure banks have the dollars they need.

Other central banks, including the Bank of Canada, the Bank of England, the European Central Bank, the Swiss National Bank, and the Bank of Japan also are reportedly involved in the temporary dollar swap plan.

Separately, the ECB jumped into the bond market, saying it is ready to buy eurozone bonds to shore up liquidity in "dysfunctional" markets.

Markets, rattled for weeks by the prospect Greece would default on its mountain of debt, heaved a sigh of relief, with both currency and stock markets rising on the news.

Under the three-year plan, the EU Commission will make 60 bn euro – 52bn – available while countries from the 16-nation eurozone would promise backing for 440bn euro –381bn.

The IMF would contribute an additional sum of at least half of the EU's total contribution, or 250bn euro or 216bn.

"We shall defend the euro whatever it takes," said EU Commissioner Olli Rehn after an 11 hour-meeting of EU Finance Ministers that capped a hectic week of chaotic sparring between panicked governments and aggressive markets.

Officials hope the massive sums will deter currency speculators from betting on a euro collapse after political posturing and soothing words failed to convince investors that Greece's financial implosion could be contained.

Markets battered the euro and Greek government bonds even as EU leaders insisted for days that Greece's problems were a unique combination of bad management, free spending and statistical cheating that doesn't apply to other euro-zone nations.

European Commission President Jose Manuel Barroso vowed to press on with stronger economic policy co-operation after the "unprecedented" agreement to stabilise the single currency.

Mr Barroso said he had been making the case for "reinforced economic governance" for a long time and the deal to shore up the euro and stop its slide on world markets was just the latest proof of the need for closer economic ties.

He went on: "We need a stronger union in economic policy, a stronger compliance by member states with policies and rules agreed at union level."

The Commission is due to unveil proposals tomorrow urging EU governments to sign up to a centrally-co-ordinated set of economic policies, with closer surveillance of "macroeconomic imbalances" in the EU, more transparent regulation of financial markets and a "permanent crisis mechanism" for dealing with future long term economic crises.

Mr Barroso, addressing a meeting of the World Economic Forum for Europe, said: "The lesson from this crisis is that if you want a

monetary union, you should also promote an economic union.