~Don’t let this deceive you, as the markets will be happy~jude
EUROPEAN leaders secured a deal to reduce Greece’s debt after labouring deep into today to find agreement on what they had billed as a blockbuster package aimed at stemming the continent’s debt crisis.
French President Nicolas Sarkozy said after the marathon negotiating session the leaders had reached agreement with private banks on a “voluntary” 50 per cent reduction of Greece’s debt in the hands of private investors.
He also said they had agreed to expand the firepower of the European Financial Stability Facility, the eurozone’s bailout vehicle, four-or-five-fold — suggesting it could provide guarantees for €800 billion to €1.3 trillion of bonds issued by countries like Spain and Italy.
The leaders agreed on a plan that would boost the capital buffers of the stragglers among the continent’s 70 biggest banks by €106bn — though they didn’t say where the money would come from.
As the leaders went into the meeting, deep divisions had remained between eurozone governments and private banks over how much to cut the government debt of Greece, the country at the heart of the crisis. Without a final deal on Greece — in particular on how deep the losses holders of Greek government bonds are expected to suffer — it would have been impossible to say how big the expanded firepower of the bailout fund could be.
Many officials warned even if they managed to cobble together a credible-sounding deal, negotiating the details of an agreement would take weeks.
After a day marked by a brawl among Italian lawmakers debating cutbacks in the country’s pension system, Italian Prime Minister Silvio Berlusconi took time out from the Brussels summit to call into a popular Italian television show shortly after midnight (Brussels time), criticising the European Central Bank and dismissing reports he plans to call for early elections.
One complication is private creditors hold only about €210bn of Greece’s €350bn government debt, making it harder to reduce Greece’s debt substantially, given that official creditors such as the IMF refuse to accept losses.
According to officials, banks have been seeking some collateral to guarantee repayment of some of the debt and have met resistance from governments.