Europe crafts debt deal that pleases markets

After months of dawdling and half-baked solutions, the leaders had been under immense pressure to finalize their plan to prevent the crisis from pushing Europe and much of the developed world back into recession and to protect their currency union from unraveling.

World stock markets surged higher Thursday on the news. Oil prices rose above $92 per barrel while the euro gained strongly - a signal investors were relieved at the outcome of the contentious negotiations.

"We have reached an agreement, which I believe lets us give a credible and ambitious and overall response to the Greek crisis," French President Nicolas Sarkozy told reporters after the meeting ended early Thursday. "Because of the complexity of the issues at stake, it took us a full night. But the results will be a source of huge relief worldwide."

The strategy unveiled after 10 hours of negotiations focused on three key points. These included a significant reduction in Greece's debts, a shoring up of the continent's banks, partially so they could sustain deeper losses on Greek bonds, and a reinforcement of a European bailout fund so it can serve as a euro1 trillion ($1.39 trillion) firewall to prevent larger economies like Italy and Spain from being dragged into the crisis.

After several missed opportunities, hashing out a plan was a success for the 17-nation eurozone, but the strategy's effectiveness will depend on the details, which will have to be finalized in the coming days and weeks.

The most difficult piece of the puzzle proved to be Greece, whose debts the leaders vowed to bring down to 120 percent of its GDP by 2020. Under current conditions, they would have ballooned to 180 percent.

To achieve that massive reduction, private creditors like banks will be asked to accept 50 percent losses on the bonds they hold. The Institute of International Finance, which has been negotiating on behalf of the banks, said it was committed to working out an agreement based on that "haircut," but the challenge now will be to ensure that all private bondholders fall in line.

It said the 50 percent cut equals a contribution of euro100 billion ($139 billion) to a second rescue for Greece, although the eurozone promised to spend some euro30 billion ($42 billion) on guaranteeing the remaining value of the new bonds.

The full program is expected to be finalized by early December and investors are supposed to swap their bonds in January, at which point Greece is likely to become the first euro country ever to be rated at default on its debt; Kazinform cites China Daily.

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