Connect with us

Hi, what are you looking for?

Capital Business
Capital Business
European Commission President Jose Manuel Barroso (L) and European Council President Herman Van Rompuy/AFP

World

Europe seals grand deal to contain debt crisis

BRUSSELS, Oct 27 – Europe sealed a grand deal Thursday to fix its festering debt crisis, shoring up its bailout fund, pledging new funds for Greece and persuading banks to share the pain at a summit vital to the health of the global economy.

After days of talks and two successive summits that dragged on for almost 10 hours as markets and world leaders remained on tenterhooks, EU president Herman Van Rompuy emerged in the wee hours saying: “We took important decisions.”

As markets firmed in Asia, IMF chief Christine Lagarde welcomed “substantial progress”, but European Central Bank chief Jean-Claude Trichet warned that “all of this now requires a lot of work and a lot of quick work.”

The last and perhaps toughest chapter in the four-point plan was a deal between eurozone leaders and the Institute of International Finance banking lobby to force private investors to take a 50 percent loss on Greece’s debt.

French President Nicolas Sarkozy and German Chancellor Angela Merkel broke off from the summit to save the day and cut a deal with the head of the banking lobby, Charles Dallara of the Institute of International Finance.

“We said it was our last word, our last offer,” said Merkel of threats to allow Greece to default failing agreement.

“We have done what needed doing,” she said.

The banks in past weeks had raised their offer to 40 percent but governments insisted on a 50-percent “haircut”.

The deal aims to slice a whopping 100 billion euros off the 350-billion-euro debt pile hampering Greece, which also won new pledges of a 100-billion-euro loan over the next three years.

Advertisement. Scroll to continue reading.

“It will be a new start for us,” said Prime Minister George Papandreou, hailing “a new era, a new chapter” for the country.

“The country has signed a very major deal, this is a historic day that can put order in our public finances,” Greek government spokesman Elias Mossialos told private Mega television.

But he also warned that “a lot is at stake in coming days”, noting that Greece’s intransigent opposition parties should help apply economic reforms and banks had to be persuaded to join the country’s debt reduction scheme.

Greek debt woes kicked off a two-year crisis that successively hit Ireland and Portugal before threatening to spill over to the euro area’s third and fourth economies, Italy and Spain.

To address that danger, eurozone leaders agreed to boost their debt rescue fund to one trillion euros.

The firepower of the European Financial Stability Facility (EFSF) is to be leveraged up betweeen four- and fivefold using clever financial footwork to avoid governments increasing guarantees.

With the world on tenterhooks, emerging powers China and Russia waded in with offers to help Europe safeguard the global economy by contributing to the fund.

The development came as global powers, from the United States to Japan and China, pressed European leaders to come up with a lasting solution to the debt crisis before a G20 summit in France on November 3 and 4.

Europe’s leaders agreed two options to boost the EFSF without increasing commitments from member states as taxpayers in countries such as Germany complain about pouring money down what they see as a bottomless hole.

Advertisement. Scroll to continue reading.

The first option allows the EFSF to provide risk insurance on new debt issued by fragile governments, in a bid to convince investors to continue buying their bonds and keep interest rates low.

A second fund, linked to the EFSF, will be created to attract private and public investors, including countries outside the eurozone. This investment vehicle could also be associated with the International Monetary Fund, an idea Russia has said it prefers.

With fears growing that the debt drama will turn into a banking system meltdown, European leaders also struck a deal to force banks to recapitalise at a summit of the 27-nation EU that preceded the eurozone talks.

“We made good progress on the bank recapitalisation, that wasn’t watered down, it now has been agreed,” said British Prime Minister David Cameron.

The European Banking Authority said banks would need 106 billion euros to fulfill the requirements.

With fears of contagion hitting Italy, Prime Minister Silvio Berlusconi came to the summit with a detailed list of pledges to cut his country’s 1.9-trillion-euro debt.

Van Rompuy said leaders welcomed the vows but called on Rome to “abide” by its commitments.

Click to comment
Advertisement

More on Capital Business

Executive Lifestyle

NAIROBI, Kenya, Mar 12 – The country’s super wealthy individuals are increasing their holding of bonds, gold and cash, a new report by Knight...

Ask Kirubi

NAIROBI, Kenya, Mar 9 – Businessman and industrialist Dr. Chris Kirubi has urged members of the public to exercise extreme caution when making any...

Ask Kirubi

NAIROBI, Kenya, Mar 24 – Businessman and industrialist Dr. Chris Kirubi is set to own half of Centum Investment Company PLC, following a go-ahead...

Ask Kirubi

It is without a doubt that the COVID-19 pandemic has caught the whole world by surprise. Although its full impact is yet to be...

Headlines

NAIROBI, Kenya, Mar 18 – Commercial Banks have been ordered to provide relief to borrowers on their personal loans, with loans eligible from March...

Kenya

NAIROBI, Kenya, Jun17 – Kenya’s tea leaves manufacturer Kericho Gold, has been awarded the Superbrands Seal by Superbrands East Africa for their quality variety...

Coronavirus

NAIROBI, Kenya, Apr 13 – As the local telecommunications industry gears up to roll out 5G networks in the country, the Communications Authority of...

Coronavirus

NAIROBI, Kenya, Mar 22 – Airtel Kenya is offering free internet access for students in order to enable continued learning at home in the...