COPENHAGEN, Denmark — The 17 countries that use the euro have boosted their emergency funding for heavily indebted countries to €800 billion ($1.1 trillion) — an amount that falls short of what the currency union's international partners had said is needed to calm financial markets.
Of the €800 billion limit eurozone finance ministers agreed to Friday, only some €500 billion ($670 billion) is still available for new bailout loans. About €300 billion ($400 billion) in loans have already been used to bail out Greece, Ireland and Portugal.
The International Monetary Fund and others have been calling for a financial "firewall" of more than €1 trillion ($1.3 trillion) — just in case the much larger economies of Spain and Italy need assistance. On Friday, IMF managing director Christine Lagarde congratulated European leaders on their agreement, but didn't say whether it went far enough to guarantee additional help from the IMF.
"I welcome the decision of euro area ministers to strengthen the European firewall," Lagarde said in a statement. "The IMF has long emphasized that enhanced European and global firewalls, together with the implementation of strong policy frameworks, are critical for ending the crisis and securing international financial stability."
Stock markets recovered some ground Friday after sharp losses this week. European stocks will end the month higher and still above the levels of last summer, when Europe's debt crisis flared up.
Germany's DAX closed 1.0 percent higher at 6,946.83 while the CAC-40 in France rose 1.3 percent to 3,423.81 and Britain's FTSE 100 gained 0.5 percent to 5,768.45.
Many economists fear that further trouble in Europe could smother a burgeoning economic recovery in other parts of the world. Together, Italy and Spain hold more than €2.5 trillion in debt and a default — or even the serious threat of a default — could pummel banks across Europe and spread panic on global markets.
But putting up large amounts to save some of its members is not an easy task for the eurozone. Rich countries such as Germany and Finland face rising opposition against bailouts among their voters, while the finances of many other states are already overstretched.
Even reaching the overall €800 billion capacity required a complicated patchwork of several old and new funds and loan programs. Ministers struggled to add up old commitments to reach a large figure to impress markets, only to quickly explain its components to calm down voters worried about their tax money.
Of the new total, only €500 billion is fresh money and will have to be built up and cobbled together over time as the eurozone moves from its interim bailout fund, the European Financial Stability Facility, to its new rescue vehicle, the European Stability Mechanism.
The ESM, which will come into force in July, will initially only be able to give out some €200 billion of its future €500 billion loan capacity. By the middle of next year, that figure will rise to €400 billion.
Until then, some €240 billion remaining from the EFSF will act as a buffer, in case a large amount of financial aid is required.
Analysts said the agreement didn't come as much of a surprise, as it was closely modeled on a proposal made earlier this week by Europe's largest economy.
"Today's decision is a classical European compromise. It was as far as the German government was willing to go and it was the minimum most other eurozone countries were expecting," said Carsten Brzeski, senior economist at ING.
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