Euro zone

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Euro zone

Euro zone leaders on Thursday morning struck a deal on the currency’s debt crisis but are still far from finalizing a plan to release the burden of the Greek debt and to strengthen their rescue fund. According to the results of the summit, governments in the euro zone agreed that banks and insurers accept 50 percent losses on the Greek debt holdings in a bid to help Athens reach a sustainable national debt, so that it may avoid default.
The heads of states, bankers and International Monetary Fund officials had a more than eight hours negotiations, at the end of which it was agreed that the European banks be recapitalized and the bloc’s rescue fund be leveraged, so that European Financial Stability Facility may have at its disposal 1.0 trillion euros.
The stock exchanges reacted positively to this news, reaching a 12-week high, while the euro reached $1.40, which is the highest level in seven weeks. This move comes after they appeared at risk because of the differences between Berlin and Paris.
Though the European Central Bank demanded that the measures be implemented with high speed, it is considered that it would take a few weeks until the plan to boost the EFSF and to save Greece of default will be completed.
By the decisions made on Thursday private sector agreed to a 50 percent nominal cut in bond investments in order to reduce Greece’s debt from 160 percent of the gross domestic product as it is now to 120 by 2020. 100 billion euros will be thus reduced of the Greek debt.
30 billion euros will be offered the private sector by the euro zone as credit enhancements, so that the negotiations on the bailout package be completed by the end of the year and Greece be able to receive the second financial aid before 2012.
Greece will receive 130 billion euros, more than it has received in July, and that made Greek Prime Minister say that the debt of the country is now sustainable.
EFSF’s scale up is meant to show the markets that the economies of larger countries like Italy and Spain can be saved in case they are engulfed too by the debt crisis. In order to make that, French President Sarkozy is expected to have talks with the Chinese president Hu Jintao, whose country is one of the most important EFSF bonds buyer.
However, with all these measures in place, economists consider that the European economies can recover and the national debts can be balanced by economic growth.
Italy has put on the table for the European leaders to see how committed the country was to reform a letter that contained the plans to sell state assets and allow employers to easily dismiss the workers.
The members of the opposition in Italy have already dismissed the plan presented by Berlusconi as one that contains “nothing” serious.
In Brussels Berlusconi was given a new warning as to the possibility that his country face a new serious threat from debt crisis. He is expected to offer a list in detail with all the measures he is willing to undertake in order to have the economy balanced.
He had attempted to convince the Northern League, his partner in the coalition, to vote a move that would have raised the pension age to 67, something the League said it would never vote.
It is said, without official confirmation, that Umberto Bossi, leader to the Northern League, had accepted a limited version of reform provided that by the end of the year the prime minister stepped down and permitted snap election.
The European crisis also produced effects in the United Kingdom, where the prime minister David Cameron faced a real rebellion in his party as 81 Tory backbenchers joined the motion that was demanding a referendum on EU membership.
The move was generated by a skirmish with French president Sarkozy, who told the British PM that he was sick and tired of receiving advises from Britain on how to run the EU business.
Sarkozy was alluding to the fact that the UK is not a member of the euro zone and that as such it made no solid contribution to the bailout plan.
Cameron told the British lawmakers that voting for leaving EU would hurt the economy and the financial service industry. The motion was rejected by the vote of the Labor party and the Liberal Democrats, and the PM was told that the war within the party was just beginning on the EU subject.
The Britons are very unsatisfied with the fact that some of the powers of the state has been transferred to Brussels and vowed to have them back as soon as possible, in the context of renegotiating the treatise that are at the base of the European Union.

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