“Three-pronged” agreement reached in Brussels entails a 50 per cent cut in private banks’ Greek bond holdings.
World stocks have surged and the euro jumped to a seven-week high against the dollar after European leaders agreed on a debt deal in Brussels aimed at resolving the two-year-old eurozone sovereign debt crisis.
Investors reacted positively to details of the plan, announced early on Thursday, which envisaged leveraging the eurozone rescue fund to $1.4 trillion, a 50 per cent write-off for private bond-holders of Greek debt and recapitalisation of the region’s banks.
In France, where banks were considered especially vulnerable to a potential Greek default, the CAC index closed Thursday’s session up 6.28 per cent, while Germany’s DAX ended the day up 5.35 per cent and the UK’s FTSE gained 2.89 per cent.
On Wall Street, the Dow Jones was up more than 2.86 per cent mid-session, while the Nasdaq was up 3.32 per cent.
Banks led the way in Europe with several of the continent’s biggest institutions posting huge daily gains.
France’s Societe Generale closed up 22.54 per cent, Credit Agricole was up 21.96 per cent and BNP Paribas gained 8.76 per cent. Germany’s Deutsche Bank was up 15.24 per cent, while the UK’s Barclays was up 7.13 per cent.
For a full Q&A on the Eurozone debt crisis, and what is being
Banks now, however, face the challenge of having to find $146 billion (106 billion euros) to shore up their capital by the end of June.
“European leaders have been accused of delaying, procrastinating which they say, made the situation worse,” Al Jazeera’s Jacky Rowland, reporting from Berlin, said.
“But the question is how in practice will it work, how will the money come into that fund.
“And how are banks going to raise level of capital, which means are they are going to be lending less money to ordinary people? These all kinds of details need to be fleshed out.”
Greece is inundated with debt and in its third-straight year of recession. Without a “firewall” in place, analysts said its economic troubles could cross over to other eurozone economies, like those of Ireland and Portugal, and to bigger economies such as Italy.
“[The] reaction has not been so good on the political side. The communists came out saying the deal means the country has gone bankrupt,” reported Al Jazeera’s John Psaropolous from Athens.
“There is a phenomenon here in Greece called ‘book cooking’ on the government level, and that has happened repeatedly,” he said. “There is mistrust of Greek accounting figures.”
But George Papandreou, the Greek prime minister, has hailed the deal.
In a televised address on Thursday, he said: “After the battle we have won, which is of huge importance for the country … we will continue to work intensively so that Greece becomes productive.”
‘Greece’s entry a mistake’
Nicolas Sarkozy, the French president, said on Thursday that it had been “a mistake” to allow Greece to join the eurozone in 2001.
“Its economy was not ready,” Sarkozy said during a TV interview.
He added that any failure to address Greece’s debt crisis would have serious ramifications for the rest of the eurozone.
“If Greece had gone bankrupt, there would have been a domino effect that would have affected everybody. The entire euro zone risked being taken down,” Sarkozy said.
While investors responded positively to the deal, others warned that more still needed to be done to shore up the eurozone’s finances.
“It would be clearly premature to declare the euro crisis as fully resolved. Much more needs to be done, especially regarding fiscal consolidation,” Credit Suisse Private Banking said.
EU leaders hope to prevent the spread of
Analysts said the broad agreement was just the beginning and European policymakers would need to overcome several hurdles to fully resolve the debt crisis.
Economist Shahin Vallee told Al Jazeera that it would take years before Greece’s economy could stand on its own.
“I think that it’s clear that whatever comprehensive solution we have achieved over night it hasn’t solved the crisis at all,” he said.
“It is comprehensive in the sense that it deals with several bits of the crisis – the banking part, the sovereign part, the institutional part.
“But it’s not comprehensive in the sense that so long as countries like Greece or Spain cannot borrow on their own, we wouldn’t solve anything. And I think that’s a few years down the line. We haven’t even touched that.”