EU debt deal cuts Greece a break

Thursday, October 27, 2011

By Jabeen Bhatti, Jason Walsh and Sumi Somaskanda, Special for USA TODAY 

Banks agreed this morning to take half of what they are owed by Greece as part of a deal brokered by European leaders to solve the continent's debt crisis and prevent it from igniting a new global financial meltdown.

The deal with private creditors would significantly cut the debt problems of Greece, whose descent toward bankruptcy started the crisis that threatens to engulf the entire European Union. 

EU President Herman Van Rompuy emerged from a marathon summit that began Wednesday afternoon to say the euro-zone would guarantee more lending to protect larger economies such asItaly and Spain, which are also dealing with huge deficits. Greece will receive $140 billion, he said. 
"These are exceptional measures for exceptional times. Europe must never find itself in this situation again," European Commission President Jos Manuel Barroso said after the meetings. 
Financial markets and governments worldwide were closely watching the talks, which if unsuccessful could cause economic instability in the United States and elsewhere. 
"We have made clear that we believe that the Europeans have the financial capacity to deal with this challenge and they need to meet that capacity with political will," White House press secretary Jay Carney said. 
Carney said failure for Europe to act "creates headwinds for the American economy." 
The EU said it would boost to $1.4 trillion its $610 billion European Financial Stability Facility, or bailout fund, by providing "risk insurance" to lenders and through other methods. 

Part of the plan is also to help banks boost their holdings of cash and other assets, allowing them the flexibility to lend more. The move is intended to help the continent's biggest banks weather losses on loans they have made to Greece. 
German Chancellor Angela Merkel and French President Nicolas Sarkozy were pressuring bankers to voluntarily forgive 50% of Greek debt, up from the 40% the institutions had already agreed to let go. The aim is to lessen the massive debt burden of Greece, which is in its third consecutive year of recession. 
European leaders said the deal's details should be finalized next month, possibly when European finance ministers meet Nov. 7. 
Some analysts said the proposals do not go far enough. 

"They agreed to plan more, that's what it is," said Constantin Gurdgiev, professor of economics atTrinity College Dublin. 
The deal came hours after Merkel won the support of German lawmakers to increase is share of the eurozone's bailout. Germany has the largest economy in the EU and has shouldered the bulk of the bailouts. 

"The world is watching Europe and Germany; it is watching whether we are ready and able, in the hour of Europe's most serious crisis since the end of World War II, to take responsibility," Merkel told parliament before the vote. "It would not be justifiable and responsible not to take the risk." 

Walsh reported from Dublin. 

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