European leaders have come to a “three-pronged” deal concerning the efforts to solve the region’s huge sovereign debt crisis.
The Three Prongs
EU leaders say that banks with assets in Greek debt will accept a 50% loss instead of the previously proposed 21% loss.
Additionally, the eurozone bailout fund will have even more power, and European banks will be told to raise more capital to protect themselves against defaults from heavily indebted countries.
The agreement is seen as vital to stopping the euro zone crisis, as fears have been mounting that the debt crisis will spread to larger eurozone economies like Italy and Spain.
As a result of the agreement, stocks in European markets have risen sharply.
After hours of talks at an emergency summit meeting in Brussels on Wednesday, EU leaders have agreed on a mechanism to boost the eurozone’s bailout fund from 440 billion euros to 1 trillion euros (£880 billion).
The framework for this newly empowered fund will be put in place in November.
In addition to the agreement being reached, Italian Prime Minister Silvio Berlusconi has pledged to balance the country’s budget and come up with austerity measures to reduce the massive 1.9 trillion euro Italian deficit.
Analysts say that EU leaders have eased pressure with these announcements, and that markets will reflect a new hope in the coming weeks.
The deal has not only lifted European stocks, but has helped the euro see a resurgence as investors react positively to a new outlook for the region’s growth and debt prospects.
Nicholas Sarkozy, President of France, has called the response to the debt crisis “credible and ambitious,” while European Commission President Jose Manuel Barroso said that the deal puts Europe one step closer to resolving the crisis.
This kind of positive response from European leaders have brought relief to many investors, who have feared the state of the eurozone’s finances and a break-up of the European currency for months.