European Leaders Convince Banks to Absorb 50% Loss against Greek Debt

October 27 00:00 2011

New York, October 27 ( – After a grueling strategic meeting, European leaders early Thursday morning took an important step towards resolving the eurozone debt crisis by convincing banks to agree to take a 50 percent loss on the face value of their Greek debt. With this step, a comprehensive package plan has been worked out to protect the euro and infuse some confidence in the market that has been jittery for quite some time.

The accord was the culmination of difficult bargaining that continued till 4 a.m. and it will enable the Greek debt to come down to 120 percent of that nation’s gross domestic product by 2020. Although this amount is still very large, the economy that has been battered by austerity measures into recession will still be able to sustain it.

According to the plan agreed on by the leaders, Europe’s banks will be forced to raise new capital to insulate them from potential sovereign debt defaults. However, there was little information available on how the Europeans would enlarge their bailout fund to achieve their goal of $1.4 trillion to better protect Italy and Spain.

It was not very difficult for the leaders to agree on banks having to raise about $150 billion to protect themselves against loans to shaky countries like Greece and Portugal the negotiations over the Greek debt were much more difficult.