'We can't leave euro to speculators'

Sarkozy says following EU announcement of financial defense plan.

sarkozyMerkelEucrisis311 (photo credit: ASSOCIATED PRESS)
(photo credit: ASSOCIATED PRESS)
BRUSSELS — French President Nicolas Sarkozy and German Chancellor Angela Merkel announced early Saturday that the 16 eurozone nations will set up a financial defense plan by the time markets open next week to shield their shared currency against further attack.
With Spain and Portugal's fragile financial systems already pounded by markets in the wake of the Greek debt crisis, Sarkozy and Merkel laid out a plan to defend all euro nations against aggressive market movement.
"The euro is an essential element of Europe. We cannot leave it to speculators," Sarkozy said following nine hours of emergency talks by leaders from eurozone nations.
"We will not let others undo what generations have created," said Sarkozy.
Sarkozy added that European finance ministers will hold another emergency meeting Sunday to work out specifics of the anti-speculation plan.
Fears of crisis spread materializing
The urgency of Sunday's hastily arranged Ecofin meeting is the first clear indication that fears of contagion are coming true, with the crisis that emerged from Greece starting to affect other eurozone countries.
Spain and Portugal are beginning to show the same signs of trouble that Greece was three months ago, with borrowing costs increasing, talk of speculative attacks and increasing concern among European partners that some form of help could be required.
The summit, originally called to sign off on a bailout plan for Greece and draw lessons for the future, turned into one of crisis management amid market turmoil.
Financial markets have continued to sell off the euro and Greek bonds even as EU leaders have insisted for days that the Greek financial implosion is a unique combination of bad management, free spending and statistical cheating that doesn't apply to other euro-zone nations.
Several leaders, including Sarkozy and Merkel, insisted the near-collapse of Greece and subsequent market moves against other eurozone nations underscored that the framework of rules for managing the euro needed revamping, according to officials close to the talks.
To deal with the crisis, some also wanted a deeper involvement of the European Central Bank.
Opening the evening summit among visibly tense dinner partners, Sarkozy and European Commission President Jose Manuel Barroso insisted the crisis now had gone beyond Greece itself and affected the very roots of the currency.
The euro has rules to stop governments from undermining it with reckless spending, limiting deficits to 3 percent of gross domestic product. Those rules were shown to lack teeth when even big countries such as Germany and France broke them for years without serious consequences.
"Unprecedented volatility throughout the world"
Merkel, whose country holds the key to any solution, spoke Friday with President Barack Obama, who said he supported the effort to deal with the financial crisis in Europe.
They said the bailout should keep the problem from spreading to other countries by giving Greece three years of support and preventing a default when it has to pay €8.5 billion in bonds coming due May 19. All leaders confirmed the support for Greece, and Sarkozy said the money would arrive on time.
"We are determined to move forward. But there is unprecedented volatility throughout the world, in the world economy," said Greek Prime Minister George Papandreou.
So far, the markets have taken little heed of leader's reassurances. Stocks, Greek bonds and the euro plunged even after the head of the European Central Bank, Jean-Claude Trichet, tersely underlined that "Portugal is not Greece. Spain is not Greece" on Thursday. The euro fell to $1.2520, its lowest in 14 months, but recovered to $1.2721 later.