All roads still lead to Berlin. The Greek stock market rose today, following a deal reached by key EU leaders. Bankers and investors of Greek debt are no doubt saddened by the news, however, as they faced a write-off of 50% of their returns. This ‘haircut’ on Greek debt is, according to the BBC, expected to cut debt to 120% of its GDP in 2020. It’s not likely that Greece, or other eurozone countries will be satisfied with this in 10 years time – a more long-term fix needs to be made now.
The Euro bailout fund (The European Financial Stability Facility) is to be boosted up to 1tn euros. Part of its purpose is to make eurozone debt more attractive to investors, by offering insurance – subsequently lowering borrowing costs for governments. There is also talk of incorporating a ‘special investment vehicle’ for other investors to contribute to, such as China. The structure for this should be set next month. However, some small good news came out of this. The statement released earlier on today. Banks are to be made to raise just over 100bn euros (privately) by mid 2012 – as a shield against government default and bank collapse.
What did the leaders have to say about this? Sarkozy believed that it gave them a “credible and ambitious and overall response to the Greek crisis.” I disagree, it is too little and too late. Nothing in the deal will actually solve the crisis and an overall response is lost in the lack of crucial details in the agreement (how exactly the rescue fund will work will only really be decided in November).
Europe is no doubt “closer to resolving its financial and economic crisis” as the President of the European Commission, Jose Manuel Barrosso, says, but that doesn’t mean this agreement has helped in the long run. For instance if the downturn in the Italian and Spanish economies turn into recession then the leaders will have to return to talks – the current three prong plan is inadequate for Greece, let alone Spain or Italy.