The new rescue fund-- European Stability Mechanism (ESM-- will replace the present 440 billion euros temporary financial shield-- European Financial Stability Fund (EFSF)-- when it expires in mid-2013.
It was set up a year ago to prevent the debt crisis in Greece from spreading to other debt-ridden countries in the euro zone such as Ireland and Portugal.
The EU finance ministers finalised the terms of the proposed rescue fund as Greece struggled to avert a bankruptcy a year after receiving a 100 billion euros bailout from the EU and the International Monetary Fund in May, last year.
The euro zone finance ministers, who met in Luxembourg on Sunday, delayed a decision to release the fifth tranche of that assistance amounting to 12 billion euros until the Greek government introduces further measures to stabilise the nation''s crippled economy.
Even though the EFSF has 440 billion euros at its disposal, its actual lending capacity was around 250 billion euros because the rest was needed to be strong enough to keep its borrowing cost low.
Therefore, the finance ministers decided to raise its effective lending capacity to 440 billion euros, they said in a statement. So far, Ireland and Portugal were rescued from bankruptcy with the support of funds from the EFSF.
The proposed new rescue fund will be comprised of 620 million euros in credit guarantees and 80 billion euros in cash from the euro zone member nations. The cash payment will be made in five equal tranches during the period between 2013 and 2017, the statement said.