Breakthrough: Banks agree to take 50 percent loss on Greek debt
Markets rally strongly after European leaders reach crucial agreement
In a breakthrough agreement, European leaders have won an agreement from
banks to take a 50 percent loss on the face value of their Greek debt.
This agreement is crucial in the assemblage of a comprehensive package
to protect the euro. The markets rallied strongly to the news. Stocks
rose 6 percent in France, 5.1 percent in Germany and 3.3 percent in Hong
Kong. On Wall Street, shares surged 2 percent at the opening bell.
'The results will be a source of huge relief to the world at large, which was waiting for a decision,' French President Sarkozy said.
There was even more positive news with the possibility that Russia along with China, new economic powerhouses would play an active role in helping with Europe's financial rescue. President Nicholas Sarkozy of France spoke to his Chinese counterpart, Hu Jintao. While there was no official word on the discussion, the top executive of the euro zone's emergency bailout fund was scheduled to visit China on Friday.
While there were feelings of optimism and relief over the decision, a host of technical questions about its implementation that have yet to be addressed.
The accord was reached just before 4 a.m. after difficult bargaining. The drastic reduction would bring Greek debt from its current level of 180 percent of gross domestic product down to 120 percent by 2020. While still a substantial figure, it is more sustainable for an economy driven into recession by austerity measures.
Leaders agreed on a plan to force the Continent's banks to raise new capital to insulate them from potential sovereign debt defaults, and to more than double the lending capacity of their emergency bailout fund to $1.4 trillion in order to better protect Italy and Spain.
"The results will be a source of huge relief to the world at large, which was waiting for a decision," Sarkozy said.
Failure at the emergency meeting would have been disastrous. There was a clear sense among the leadership that they had averted potential catastrophe. "I believe we were able to live up to expectations, that we did the right thing for the euro zone," Chancellor Angela Merkel of Germany said. "This brings us one step farther along the road to a good and sensible solution."
While the plan requires the banks to raise new capital - banks will be forced to raise about $150 billion to protect themselves against losses on loans to shaky countries like Greece and Portugal - the negotiations over the Greek debt were far more difficult.
The banks had been resisting requests that they voluntarily accept a loss of about 50 percent on their Greek loans, far more than the 21 percent agreed to over the summer.
Germany had taken a tougher stance than France with the banks. Merkel was willing to think about imposing an involuntary write-down on the private sector, but Sarkozy remained worried about the consequences on the markets and the banking system.
© 2011, Catholic Online. Distributed by NEWS CONSORTIUM.
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Pope Benedict XVI's Prayer Intentions for January 2013
General Intention: The Faith of Christians. That in this Year of Faith Christians may deepen their knowledge of the mystery of Christ and witness joyfully to the gift of faith in him.
Missionary Intention: Middle Eastern Christians. That the Christian communities of the Middle East, often discriminated against, may receive from the Holy Spirit the strength of fidelity and perseverance.
Keywords: Euozone, agreement, Greek debt, bnaks
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