May 10, 2010 / 3:03 PM / in 9 years

UPDATE 1-Crisis fund is 'morphine' for markets-IMF official

(Adds details, background)

BRUSSELS, May 10 (Reuters) - The $1 trillion global emergency package for the euro zone is “morphine” that has the potential to calm markets but should not be seen as a long-term solution, the IMF’s head for Europe said on Monday.

EU finance ministers agreed early on Monday on a package of standby funds and loan guarantees which with IMF funding is worth about 750 billion euros ($1,006 billion) to prevent Greece’s debt crisis spreading to other euro zone states.

Marek Belka, the International Monetary Fund’s chief representative for Europe, said the 27-nation bloc ought to seek long-term solutions to ensure financial stability.

“What has happened last night gives a little bit of relief for the Europeans. It has potential for calming down markets,” Belka, who took part in the ministers’ meeting, told a World Economic Forum conference in Brussels.

“Don’t treat it as a long-term solution. It is a kind of morphine that stabilises the patient. Real treatment has yet to come.”

The package consisted of a loan facility and loan guarantees as well as possible help from the IMF that could reach 250 million euros.

The EU ministers also called for budget consolidation, sustainable finances, improved economic growth and closer economic coordination. Plans for fiscal consolidation and structural reforms would be accelerated where needed, they said.

In response, the euro rebounded from last week’s 14-month low against the dollar, while European stocks and bonds rallied sharply. (Reporting by Marcin Grajewski, writing by Justyna Pawlak; editing by Jason Webb)

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