European Union finance ministers promised to counter the wolfpack of the financial markets and defend the euro before talks on Sunday on ring-fencing Greece's debt crisis to stop it spreading.

The European Commission is presenting to the ministers a proposal for a stabilization mechanism intended to provide a multi-billion euro safety net for other euro zone countries with bloated public finances such as Portugal, Spain or Ireland.

Financial markets have been punishing euro zone members with high deficits or debts as well as low economic growth, threatening to plunge them into Greece's plight.

We now see ... wolfpack behaviors, and if we will not stop these packs, even if it is self-inflicted weakness, they will tear the weaker countries apart, Swedish Finance Minister Anders Borg told reporters on arrival for the meeting.

British finance minister Alistair Darling stressed the need to stabilize the markets, while ministers from France, Spain, Finland and other euro zone states said they would defend their currency.

We are going to defend the euro... we have to give more stability to our guarantee, Spanish Economy Minister Elena Salgado said before the emergency meeting held before markets open on Monday.

An EU summit on Friday approved 110 billion euros ($147 billion) in emergency EU/IMF loans to Greece over three years to help it over a budget crisis in exchange for austerity measures so sharp that they have already caused violent protests.

Economists estimate that if Portugal, Ireland and Spain eventually come to require similar three-year bailouts, the total cost could be some 500 billion euros.

EU sources said the European Commission would ask the bloc's finance ministers to extend an existing aid mechanism for non-euro zone countries to nations in the single-currency area.

The Commission will also ask them to raise the existing amount available under the mechanism, called the balance-of-payments facility, by 60 billion euros ($80.5 billion). The maximum available now is 50 billion euros.

The 60 billion top-up would be guaranteed by all 27 EU members and the loans, if paid out to an EU member, would carry conditions set by the International Monetary Fund, one EU source said.

As an additional measure for euro zone countries only, the Commission will propose a separate mechanism of intergovernmental loans, the source said.

MARKET TURMOIL

Sunday's talks come on the heels of accusations that the 16 countries that use the single currency have heightened market uncertainty through lack of action.

Fears that a euro zone debt crisis could rock banks and the global economy like the September 2008 collapse of U.S. bank Lehman Brothers swept through markets last week, pushing global stocks to around a three-month low.

Last week's euro zone summit asked for a European Stabilization mechanism. Some economists said the move was welcome news, but it would cure the symptoms, rather than the disease.

By putting in place additional safeguards for the euro area financial system, governments finally appear to be rising to the challenge of the sovereign debt crisis, Morgan Stanley said in a research note to clients.

But, like the measures taken before - for the benefit of Greece - a stabilization fund is just buying time for distressed borrowers, the bank said.

It added: The fiscal policy action taken in these countries during this extra time is essential. If yet another rescue mechanism isn't followed by aggressive austerity measures, the problem just continues to fester - and could eventually spread even wider.

(Writing by Charles Dick)

Portugal United kingdom Alistair Darling Morgan Stanley