October 28, 2011 in Nation/World

Greek debt relief part of eurozone deal

Associated Press photo

A man walks past screens showing graphs of stocks at the Athens Stock Exchange in Greece on Thursday. Greek shares rose sharply following a new European debt relief deal.
(Full-size photo)

 A glance at the major measures adopted by eurozone heads of government Thursday after marathon negotiations in Brussels:

• A plan to reduce Greece’s debts to a level at which the country can begin to pay them down instead of seeing them continue to rise. Private creditors who have lent money to Greece agreed, after difficult bargaining with eurozone leaders, to accept 50 percent losses on the bonds they hold. The goal is to reduce Greece’s debt to 120 percent of gross domestic product by 2020. Under current conditions, it would have ballooned to 180 percent.

• A program to shore up the continent’s banks by requiring them to expand their rainy-day funds, in part so they will be able sustain deeper losses on Greek bonds. The banks will have to raise money until their high-quality capital reserves are at least 9 percent the size of their risky investments, including Greek bonds. The new capital threshold is much higher than the 5 percent capital ratio the banks had to prove in stress tests carried out just this summer.

• A plan to strengthen the eurozone bailout fund – the European Financial Stability Facility – to make sure other countries with troubled economies, like Italy and Spain, don’t get dragged into the crisis. The $610 billion fund will be used to insure part of the potential losses on the bonds issued by countries with weak public finances. That is estimated to boost its firepower to around $1.4 trillion.

Associated Press

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