EU leaders reach deal to reduce Greece debt

BRUSSELS – European leaders agreed today on a crucial plan to reduce Greece’s debts and provide it with more rescue loans so that the faltering country can eventually dig out from under its debt burden.

After a marathon summit, EU President Herman Van Rompuy said that the deal will reduce Greece’s debt to 120 percent of its GDP in 2020. Under current conditions, it would have grown to 180 percent.

That will require banks to take on 50 percent losses on their Greek bond holdings – a hard-fought deal that negotiators will now have to sell to individual bondholders.

Van Rompuy also said the eurozone and International Monetary Fund – which have both been propping the country up with loans since May 2010 – will give the country another $140 billion. That’s slightly less than the amount agreed in July, presumably because the banks will now pick up more of the slack.

“These are exceptional measures for exceptional times. Europe must never find itself in this situation again,” said European Commission President Jose Manuel Barroso.

The question of how to reduce Greece’s debt load had proven the sticking point in European leaders’ efforts to come up with a grand plan to solve its debt crisis.

But it was just one of three prongs necessary to restore confidence in Europe’s ability to pay its debts and prevent the 2-year-old crisis from pushing the continent and much of the developed world back into recession.

The first details of such a plan emerged hours earlier, when European Union leaders announced they would force the continent’s biggest banks to raise $148 billion by June – partially to ensure they could weather the expected losses on Greek debt.

Van Rompuy also announced that the eurozone would boost the firepower of their bailout fund to about $1.4 trillion in order to protect larger economies like Italy and Spain from the market turmoil that has already pushed three countries to need bailouts.