BRUSSELS -- The European Union put up a staggering $1 trillion Monday to contain its spreading government debt crisis and keep it from tearing the euro currency apart and derailing the global economic recovery.
Analysts said the huge sum supplied the "shock and awe" markets had been seeking for weeks, at least in the short term, and the euro and stocks soared on the news.
European leaders negotiated into the early hours Monday before reaching a deal in which governments that use the euro would join the EU and International Monetary Fund in putting up euro750 billion in loans available to prop up troubled governments.
The European Central bank will buy government and private debt to keep debt markets working and lower borrowing costs, while the U.S. Federal Reserve joined with other central banks in the effort, reactivating a currency swap program used during the earlier stages of the financial crisis to ship dollars overseas to be pumped into banking systems as short-term credit.
The overnight decision immediately jump-started markets worldwide. The euro immediately shot back to life and up to $1.30, recovering from Friday's 14-month low of $1.2523.
Officials acted after ominous slides in world stocks and the euro last week raised fears that the debt crisis would spread from heavily indebted Greece to other financially weak countries such as Spain and Portugal. It reached the point where President Barack Obama discussed the crisis by phone with German Chancellor Angela Merkel and French President Nicholas Sarkozy.
Analysts said the measures had put out the fire for now by eliminating fears that governments would lack funds to pay off their debts. But several raised long-term worries about spreading debt of budget sinners to more responsible governments, and pointed to the lack of tough rules to keep debt from piling up again.
"It buys time. We don't know if it will be enough. They're trying to give the impression that they're still united. They've bought some breathing space but that's all," said Song Seng Wun, an economist with CIMB-GK Research. "This perhaps just postpones the inevitable, the euro may have to ultimately give way, that's the worst-case scenario."
Jeremy Batstone-Carr of Charles Stanley stockbrockers said the underlying problem won't be solved unless governments stop piling up so much debt. "The last thing you give a drunk is another drink," he said. "Put differently, you cannot make any nation that is unable to service its accumulated debts more credit worthy by extending more credit."
European Commission President Jose Manuel Barroso promised tougher rules for member countries' spending.
On Wednesday, EU officials will propose tougher sanctions for financially wayward nations and more coordination between the governments on their economies. "We need stronger coordination, economic policy coordination," he said. It will be discussed by EU finance ministers next week.
Under Monday's three-year plan, the European Commission -- the EU's governing body -- will make euro60 billion ($75 billion) available while countries from the 16-nation eurozone would promise backing for euro440 billion ($570 billion). The IMF would contribute an additional sum of at least half of the EU's total contribution, or euro250 billion.
"We shall defend the euro whatever it takes," EU Commissioner Olli Rehn said.
Officials hope the massive sums will deter currency speculators from betting on a euro collapse after political posturing and soothing words failed to convince investors that Greece's financial implosion could be contained.
Markets had battered the euro and Greek government bonds even as EU leaders insisted for days that Greece's problems were a unique combination of bad management, free spending and statistical cheating that doesn't apply to other euro-zone nations.
In the end, even longtime skeptic Germany realized Europe had to show the money after financial attacks on Greece's debt seemed poised to spread to other weak European nations such as Portugal and Spain. Fear of default led to investors demanding high interest rates that Greece could not pay, forcing it to seek a bailout. Many feared market skepticism would make Portugal and Spain pay more and more to borrow, worsening their plight.
Spain and Portugal have committed to "take significant additional consolidation measures in 2010 and 2011," a statement from EU finance ministers said. The two countries will present them to EU finance ministers at their meeting on May 18.
"We are facing such exceptional circumstances today and the mechanism will stay in place as long as needed to safeguard financial stability," the ministers said.
Merkel said that her government would approve the rescue plan today before parliament gave it "quick but thorough" consideration.