EU Emergency Measures:

On 9 May 2010, Europe's Finance Ministers approved, in an emergency meeting, a rescue package that could provide 750 billion Euros for crisis aid aimed at ensuring financial stability across Europe.

The package announced has three components:

The first part expands a €60 billion (US$70 billion) Eurogroup's stabilisation fund (European Financial Stabilization mechanism). Countries will be able to draw on that fund but activation will be subject to strict conditionalities. It is intended to help any
member of the eurozone that is struggling to finance its debts because of high interest rates demanded by the financial markets. All EU countries contribute to this fund on a pro-rata basis, whether they are eurozone countries or not.

The second part worth €440 billion (US$570 billion) consists of government-backed loans to improve market confidence. The loans will be issued by a Special purpose vehicle (SPV) managed by the Commission and backed by the explicit guarantee
of the EMU member states and the implicit guarantee of the European Central Bank. All eurozone economies will participate in funding this mechanism, while other EU members can choose whether to participate.

Sweden and Poland have agreed to participate, while the UK's refusal prompted strong criticism from the French government, along with a threat that eurozone countries would not support the pound in the case of speculative attacks. Denmark
will not contribute despite its participation in the European Exchange Rate Mechanism.

Finally the third part consists of €250 billion (US$284 billion), half the size of the EU participation, with additional contribution from the International Monetary Fund.

The agreement also allowed the European Central Bank to start buying government debt which is expected to reduce bond yields. (Greek bond yields fell from over 10% to just over 5%; Asian bonds also fell with the EU bailout.)

The ECB has also announced a series measures aimed at reducing volatility in the financial markets and at improving liquidity:

First, it began open market operations buying government and private debt securities.

Second, it announced two 3- month and one 6-month full allotment of Long Term Refinancing Operations (LTRO's).

Thirdly, it reactivated the dollar swap lines with Federal Reserve support.

Subsequently, the member banks of the European System of Central Banks started buying government debt.

Stocks worldwide surged after this announcement as fears that the Greek debt crisis would spread subsided, some rose the most in a year or more.

The Euro made its biggest gain in 18 months, before falling to a new four-year low a week later. Commodity prices also rose following the announcement.
The dollar Libor held at a nine-month high. Default swaps also fell. The VIX closed down a record almost 30%, after a record weekly rise the preceding week that prompted the bailout.

Despite the moves by the EU, the European Commissioner for Economic and Financial Affairs, Olli Rehn, called for "absolutely necessary" deficit cuts by the heavily indebted countries of Spain and Portugal. Private sector bankers and economists also warned that the threat from a double dip recession has not faded.

Stephen Roach, chairman of Morgan Stanley Asia, warned about this threat saying "When you have a vulnerable post-crisis economic recovery and crises reverberating in the aftermath of that, you have some very serious risks to the global business cycle.

" Nouriel Roubini said the new credit available to the heavily indebted countries did not equate to an immediate revival of economic fortunes:

"While money is available now on the table, all this money is conditional on all these countries doing fiscal adjustment and structural reform."

After initially falling to a four-year low early in the week following the announcement of the EU guarantee packages, the euro rose as hedge funds and other short-term traders unwound short positions and carry trades in the currency

Regards,

Engr. Shoaib Awan

Assistant Engineer(Production)
Oil & Gas Development Company Ltd.(OGDCL)
Islamabad.

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