Jeremy Hobson: European leaders burned the midnight oil in Brussels and have agreed on a new plan to deal with the debt crisis. The plan aims to stop Greece’s immediate debt troubles from spreading to other countries that use the euro.
As we continue Greek Week here at Marketplace, let’s get the latest on the deal from our European correspondent Stephen Beard, who is with us live from London. Good morning Stephen.
Stephen Beard: Hello Jeremy.
Hobson: Well first, give us the specifics of this plan.
Beard: Right. Well, up until yesterday evening, the hard numbers were proving very elusive, but we do now have some. The leaders have agreed that Greece should be let off 50 percent of its debts, and that key banks in the eurozone should be required to raise around $143 billion to strengthen their balance sheets, so they cope with their losses on Greek government debt.
Hobson: And what about the big bailout fund, Stephen, that leaders wanted to make larger in order to deal with any crisis might flare up around Europe?
Beard: We have a number for that, too. The plan is that the firepower of this fund will be more than double — to $1.4 trillion. Now, the precise detail of how the fund will work and how it will be financed hasn’t been finalized. But when he unveiled the agreement today, the head of the European Commission, Jose Manuel Barroso, made no apology for this lack of detail.
Jose Manuel Barroso: I’ve said it before and I’ll say it again: this is a marathon, not a sprint. The technical work needed to finalize the certain aspects of this package will be completed by the relevant authorities in the coming weeks.
We should know, in fact, by the middle of November exactly how the fund will work. It’s thought that it won’t involve any more money or any more loan guarantees from European governments. But the Chinese and other emerging countries might kick some cash in.
Hobson: So now, what about the big question, Stephen: will this plan be enough to deal with the debt crisis once and for all?
Beard: Well, it deals with some of the immediate problems, but some of the fundamental issues remain — for example, there’s no role here for the European Central Bank to act like the Federal Reserve and be able to step in and buy unlimited amounts of government bonds if necessary.
And this deal doesn’t really take us much further down the road towards a “United States of Europe,” where the eurozone can act like one country and control the public spending of the 17 member states.
Financial markets have cheered the deal, but Marchel Alexandrovich of Jefferies International Bank says that’s very much an initial reaction.
Marchel Alexandrovich: I think after the initial kind of sense of excitement, and a bit of relief — I think, you know, give it a week, give it possibly less than that, I think markets will come back to the reality that the problems have not been sorted out and Europe still has a lot of issues that it needs to resolve.
So, today’s deal buys time for the euro, but it’s too early to say the crisis is definitely over.
Hobson: Marketplace’s Stephen Beard with us from London, thanks Stephen.
Beard: OK, Jeremy.
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