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Euro zone launches new bailout fund for troubled economies


Thousands of people took to the streets of Madrid today to protest the government's punishing austerity measures.


Denis Doyle

A new bailout fund for euro zone economies was launched Monday at a meeting of finance ministers in Luxembourg.

BBC News reported that the fund, known as the European Stability Mechanism (ESM), will be able to lend 500 billion euros, or about $650 billion dollars, by 2014. Germany, the largest economy in Europe, will chip in more than a quarter of the funds.

Reuters called the new permanent fund a "major defense against the debt crisis that now threatens Spain."

Spain, whose banking sector has been hobbled by a crisis in the real estate market, was expected to be first troubled country to receive a payout from the fund. But in a surprising decision, finance ministers said Spain does not yet need a bailout.

"Spain needs no aid program. Spain is doing everything necessary, in fiscal policy, in structural reforms," German Finance Minister Wolfgang Schaeuble said, according to Reuters. Spain is currently receiving assistance from the European Union to infuse its banks with more capital and, accordind to Schaeuble, is not interested in a bailout.

Luxembourg's finance minister, Luc Frieden, did however say that ministers will consider a request for additional aid if Spain makes one, according to Reuters.

All euro zone countries will begin paying into the fund this week. According to CBC news, Jean-Claude Juncker, the head of the ESM board of governors, wants to raise at least 200 billion euros by the end of October.

Tens of thousands of people marched in Spain over the weekend to protest tough government spending cuts they say will only increase already record high unemployment and deepen the country’s second recession in three years.

Trade unions have threatened to call a general strike, possibly in November, unless the center-right government of Prime Minister Mariano Rajoy holds a referendum on the unpopular austerity measures, which are aimed at stabilizing the country's economy.

More from GlobalPost: Spain: More protests against austerity measures