The European Union announced a plan on Thursday to significantly increase a bailout fund designed to contain the eurozone debt crisis and reduce Greece’s debt by half.
The Frankfurt market rising more than five percent, while the Paris stock exchange shot up more than six percent. The London exchange increased nearly three percent, and U.S. indexes were all ahead by more than two percent in midday trading.
The debt-relief scheme could give Greece a chance to regain its economic footing and help to solve the continent’s two-year-long crisis, European leaders said. “We have done what needed doing,” said German Chancellor Angela Merkel. French President Nicolas Sarkozy said it was a “credible and ambitious” plan, while Greek Prime Minister George Papandreou said the result would be “a new era, a new chapter” for his country.
The United States will support its European allies to address global economic problems, U.S. President Barack Obama said. He welcomed the deal as a “critical foundation” to help solve the eurozone crisis.
Following 10 hours of tense negotiations in Brussels, EU leaders said they had convinced banks and investors to accept a 50 percent loss on Greek government bonds, effectively reducing Greek debt by $140 billion. At the same time, the banks are required to raise an additional $148 billion by June. The bailout fund to cover future assistance for debt-ridden nations in the 17-nation bloc that uses the euro currency will be increased to $1.4 trillion.
The deal still leaves Greece with a significant debt burden – estimated at 120 percent of its economic output in 2020, down from 160 percent now. But Greek Finance Minister Evangelos Venizelos said that debt level “becomes viable” for the country.
The deal has effectively saved the European single currency, French Finance Minister Francois Baroin said, telling French radio that it will “stabilize the eurozone and global growth.” World Bank chief Robert Zoellick welcomed the deal, as did officials in China and Japan.
Financial analysts and world leaders outside Europe have said in the past that the continent’s leaders were too timid in dealing with the crisis. International creditors have approved two bailouts for Greece and single bailouts for Ireland and Portugal. The financial markets feared that the debt contagion would spread to bigger European economies in Italy and Spain, and that Greece would evenutally default on its obligations despite the bailouts.
Analysts said Thursday the Brussels agreement could give the continent’s weaker economies more time to grow and adapt to the austerity measures their governments have imposed.