Hard-won euro debt deal wins kudos
(BRUSSELS) - World leaders led by US President Barack Obama on Thursday welcomed an accord to solve the eurozone debt crisis as markets soared in a massive relief rally on news of the deal.
Obama said more work needed to be done and Washington would do its bit, having pressed the European Union for months to take the action needed to protect the euro and prevent the crisis pushing the world back into recession.
"We welcome the important decisions made ... by the European Union which lay a critical foundation for a comprehensive solution to the eurozone crisis," Obama said in a statement.
"We look forward to the full development and rapid implementation of their plan. We will continue to support the EU and our European allies in their efforts to address this crisis as we work together to sustain the global recovery and put our people back to work."
"We have done what needed doing," said German Chancellor Angela Merkel of the accord which French President Nicolas Sarkozy later claimed had saved Europe and the whole world from disaster.
"We had to face up to all this. If the euro had exploded last night, all of Europe would have exploded," Sarkozy said in a televised interview.
"If there had not been an agreement last night, it was not just Europe that would have sunk into catastrophe, it was the whole world," he said.
"We took important decisions yesterday that avoided catastrophe."
EU leaders, often accused of doing too little too late, finally clinched a grand plan to tame the debt crisis early Thursday, ending two years of agony and uncertainty which very nearly sank the euro project.
With the global economy stalling, Europe had come under intense pressure to put its house in order to save Italy and Spain from following Greece, Ireland Portugal in needing huge bailouts from the EU and International Monetary Fund.
"The European fix is in," said Patrick O'Hare of Briefing.com.
Europe's master plan included a trillion-euro rescue fund, a new bailout for Greece, and a deal forcing banks to take a 50 percent loss on their holdings of Greek government debt.
Investors "appear to be pleased with what they have heard, even though it isn't exactly a plan where all the i's have been dotted and the t's have been crossed," O'Hare said.
European stock markets posted massive gains, of more than five percent in several centres, with New York also up sharply as investors bought into the accord and also welcomed better-than-expected US growth figures.
Not all commentators were convinced, however, doubting if the deal will deliver growth, the key component for ultimately reducing debt.
"The plans announced by eurozone policymakers ... look more like a peashooter than the 'bazooka' previously promised to tackle the region's problems," sceptical Capital Economics analysts wrote in a note.
"We have not altered our view that the crisis will deepen over the coming quarters, ultimately resulting in some form of break-up of the currency union."
President Hu Jintao told his French counterpart Sarkozy that the package boded well for Europe, China's leading trade partner, to "stabilise financial markets, overcome difficulties."
Emerging economic giants China and Russia also vowed to support Europe's rescue fund directly and Beijing was not afraid to issue a note of warning too.
"Emerging economies should not be seen as the EU's good samaritans -- in the end the EU has to pull itself out of the crisis," said China's official Xinhua news agency.
In Frankfurt, banks poised to take a 50 percent loss on their Greek debt exposure under the deal, issued a similar message.
"EU leaders have proven they can act," said the powerful German banking federation BdB. "It is now up to the politicians to keep the pressure on Greece and other troubled eurozone countries to reform."
In Athens, Prime Minister George Papandreou said Greece had won a "battle ... which is of huge importance for the country" which would now aim to become productive once again.
As talks dragged on for almost 10 hours overnight in Brussels, the last and perhaps toughest nut was cracked with the banks giving way on the Greek debt write-down.
In signs of backroom drama, Sarkozy and Merkel broke off from the summit talks to save the day in person by cutting a deal with the head of the banking lobby, Charles Dallara.
"We said it was our last word, our last offer," said Merkel of threats to allow Greece to default failing an agreement with the banks.
The agreement was welcomed as "historic" in Greece as it will slice a whopping 100 billion euros off its overwhelming 350-billion-euro debt pile.
In addition, eurozone leaders agreed a new Greek bailout to replace a 109-billion loan package agreed in July. It would be worth up to 100 billion euros until 2014, and should be agreed by the end of the year.
"Not only the future of Greece but the future of Europe was at stake," said Deutsche Bank chief Josef Ackermann after negotiating the write-down in his role as chairman of the IIF.
To address that danger, eurozone leaders agreed to boost their debt rescue fund, the European Financial Stability Facility (EFSF), to one trillion euros.
Its firepower will be multiplied four to fives times, providing risk insurance on new bonds issued by fragile governments in a bid to reassure investors and encourage them to continue to invest in them.
A second fund, linked to the EFSF, will be created to attract private and public investors, including the likes of China and Russia. The investment vehicle might also be routed via the IMF.
With fears growing that the debt drama would sink the banking system, European leaders also agreed to force banks to recapitalise, setting aside more than 100 billion euros to help them cope with any losses on the Greek debt holdings.