The markets rallied strongly on the news of the accord, which was achieved after nearly 10 hours of negotiations by European leaders, finance ministers and bankers at an emergency meeting in Brussels. 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 value of the euro, which cost $1.32 a few weeks ago when anxiety over its future stability was worsening, surged to $1.40 in European foreign exchange trading on Thursday.
Hopes were also boosted by the possibility that China, which has amassed enormous amounts of capital in its historic economic climb over the years, would play an active role in helping with Europe’s financial rescue. President Nicholas Sarkozy of France spoke to his Chinese counterpart, Hu Jintao, on Thursday, although there was no word on precisely what was discussed, and the top executive of the euro zone’s emergency bailout fund was scheduled to visit China on Friday.
Still, the optimism and relief that washed over the markets in the aftermath of the European announcement of the package obscured a host of technical questions about its implementation that have yet to be addressed. How those questions are dealt with, European officials and bankers said, could determine whether the Europeans have truly begun to restore confidence in the battered euro currency zone.
The accord was reached just before 4 a.m. after difficult bargaining. The severe reduction would bring Greek debt from its current level of 180 percent of gross domestic product down to 120 percent by 2020, a still enormous figure but more sustainable for an economy driven into recession by austerity measures.
The leaders agreed on Wednesday 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,” Mr. Sarkozy said.
After the buildup to this summit meeting, failure here would have been regarded as a disaster, and 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 to require banks to raise new capital was generally approved without difficulty — 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 difficult.
In the face of considerable pressure from Europe’s leaders, 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 previously. But after months of denying that Greece would have to restructure its large debt, which was trading at 40 percent of face value, European leaders forced the much larger reduction, known as a “haircut,” on the banks, while the International Monetary Fund promised more aid to Greece.
Germany had taken a tougher stance than France with the banks. Mrs. Merkel was willing to think about imposing an involuntary write-down on the private sector, but Mr. Sarkozy remained worried about the consequences on the markets and the banking system.
In a statement, Charles Dallara, managing director of the Institute of International Finance, which represents the major banks, said he welcomed the deal. He called it “a comprehensive package of measures to stabilize Europe, to strengthen the European banking system and to support Greece’s reform effort.”
In a meeting described as crucial for the fate of the euro zone, the leaders had been trying to restore market confidence in the euro and in the creditworthiness of the 17 countries that use it.
Reporting was contributed by Jack Ewing from Frankfurt, David Jolly from Paris and Rachel Donadio from Athens.
Article source: http://www.nytimes.com/2011/10/28/world/europe/europe-in-accord-on-basics-of-plan-to-save-the-euro.html?partner=rss&emc=rss
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