Eurosummit: post-game analysis

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European leaders achieved a breakthrough early on Thursday to write off half of Greece’s debt and seek foreign capital to double the eurozone’s bailout fund to around €1 trillion. But crucial details on the fund’s size were left for finance ministers to decide end of November.

Two weeks ago, British Prime Minister David Cameron called on his eurozone colleagues to make use of a “big bazooka” to quickly end the euro crisis.
After Sunday’s inconclusive summit, eurozone leaders very early on Thursday agreed on what French President Nicolas Sarkozy described as “a global, an ambitious and a credible answer” to the eurozone crisis.

Nicolas Sarkozy, President of France:
I believe the results will be received with relief by the entire world that is waiting for strong decisions in the eurozone.

Angela Merkel, Chancellor of Germany:
We Europeans have demonstrated this night that we
can make the right decisions. We have named and indentified the causes of this crisis and we have moved a step closer to a solution.

Eurozone leaders agreed on a new €100-billion package to save Greece from default, with the participation of the private sector that requires banks and others who hold Greek government debt to give up 50% of their investments. As a result, it becomes feasible to bring down its total debt to manageable proportions by the end of this decade.

Giorgos Papandreou, Prime Minister of Greece;
“We can claim that a new day has come for Greece, and let’s hope that this day is not only for Greece but also for Europe.”

Jean-Claude Trichet, President of the European Central Bank:
“It is good that these decisions are taken and orientations are taken which I trust are going in the right direction. But again: no complacency. Hard work now. Hard work for all those that have to implement those decisions of the heads.”

The second big decision was to increase the financial capacity of the European Financial Stability Facility, the EFSF, from its initial €440 billion to €1 trillion. This increase will be achieved by turning the EFSF into an insurance company, which means no additional money needs to be put into the fund. The fund will also be opened up to foreign investors such as Brazil and China.

Barroso, President of the European Commission:
“We have agreed two options for leveraging the EFSF. Together this will allow us to more effectively prevent contagion.”

Crucial details however remain to be decided during the coming weeks..

Barroso, President of the European Commission:
Another significant decision made is that euro countries have committed to adopting a golden rule in their constitutions that requires them to limit their government deficits.

Barroso, President of the European Commission:

“Look. Don’t ask me at this time for exact figures.”

Herman van Rompuy, President of the European Council:
“We took a further step last night in agreeing that for Euro area member states in an excessive deficit procedure, the commission and the council will be able to examine national budgets and adopt an opinion on them before their adoption by the relevant national parliaments.”

Financial markets on Thursday welcomed the agreement. That also happened after the July agreement to save Greece, which during the summer proved not strong enough. The initial enthusiasm with which this deal may be received may be short-lived if EU leaders don’t follow up on their promises.

After all, even a big bazooka can fail.

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