European leaders took a “significant step” towards solving the euro zone financial crisis early Thursday morning, The New York Times reports.
In a summit meeting that began Wednesday afternoon and extended into the wee hours, the leaders reached a deal that hinged on agreement from banks to take a 50 percent haircut in the value of their Greek debt. Banks had resisted leaders’ calls to increase the already agreed-upon 21 percent cut, but the leaders prevailed and the accord was reached shortly before 4 a.m. The move is expected to reduce Greek debt to 120 percent of the country’s gross domestic product by 2020—a still-high, but sustainable, figure for Greece’s floundering economy. The International Monetary Fund also pledged additional aid to the country.
Europe’s leaders plan to boost the euro zone’s bailout fund to further stabilize the 17-member zone. The expanded European Financial Stability Facility is intended to ward off financial panic in the struggling economies of Greece, Portugal, and most of all, Italy, the euro zone’s third-largest economy. It was not yet clear how they planned to finance enlarging the fund to a generally accepted target of $1.4 trillion, but they may reach out to investors such as China and Russia, according to The Times.
Another aspect of the euro deal will require European banks to raise additional capital to protect themselves from potential sovereign debt defaults. The move was a less controversial, but still important, step towards euro-zone stability.
Though there was no hard deadline for European leaders to reach a deal, there was an informal one: the Nov. 3 kickoff of a two-day Group of 20 summit meeting in France, which President Obama and other world leaders will attend.
Thursday’s deal is expected to calm global markets. “After all the buildup to this summit meeting, failure here would have been a disaster,” The Times said.