European leaders agreed to set up an emergency fund to halt the spread of Greece's fiscal woes, seeking to prevent a sovereign debt crisis from shattering confidence in the 11-year-old euro. Jolted into action by the sliding currency and soaring bond yields in Portugal and Spain, leaders of the 16 euro countries said the workings of the financial backstop will be hammered out before Asian markets open late tomorrow European time. “We will defend the euro, whatever it takes,” European Commission President Jose Barroso told reporters early today after the leaders met in Brussels. Europe's failure to contain Greece's fiscal crisis triggered a 4.3 percent drop in the euro this week, the biggest weekly decline since October 2008. And it prompted the US and Asia to rally around in a bid to prevent a global sovereign-debt crisis from pitching the world back into a recession. “The leaders have decided to put in place a European intervention mechanism to preserve the stability of the euro zone. The decisions taken will have immediate application, from the point that financial markets open on Monday morning.” “If the domino effect begins, no economy is safe,” Finnish Prime Minister Matti Vanhanen told the Finnish broadcaster YLE on Saturday. Euro zone sources said late on Friday that the mechanism could be funded by bonds issued by the European Commission with guarantees from euro zone states. The treaty governing the EU says that if a member of the 27-nation bloc is in difficulties caused by circumstances beyond its control, EU ministers may grant it financial assistance. “Two mechanisms have been agreed - one based on article 122.2 of the Treaty saying the council can help a member state with serious difficulties,” one of the sources said. “The other will enable the European Commission to go on the markets and get money with an explicit guarantee of the member states and an implicit guarantee of the ECB.” European officials declined to disclose the size of the stabilization fund, to be made up of money borrowed by the European Union's central authorities with guarantees by national governments. Finance ministers will meet at 3 p.m. today (Sunday) in Brussels to flesh 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.” Barroso said he wouldn't push ECB to, for example, buy government bonds.
