After marathon talks and emergency meetings, the European Union has finalized a deal that is set to contain the growing debt crisis.
After marathon talks, EU leaders emerged on Thursday and announced a new package of measures to rescue the euro had been agreed on.
The deal includes increasing the firepower of Europe’s bailout fund, the European Financial Stability Facility, to about 1 trillion euros (US$1.4 trillion) and getting holders of Greek debt to take losses of 50%, injecting Europe’s biggest banks with about $150 billion to withstand those losses and providing Greece an additional $140 billion to stay afloat.
IMF chief Christine Lagarde welcomed "substantial progress", but European Central Bank chief Jean-Claude Trichet warned that "all of this now requires a lot of work and a lot of quick work."
"We believe we will have a lot of flexibility to protect the euro and avoid contagion risks," German Chancellor Angela Merkel told journalists after the end of a meeting of euro group heads of state and government, adding that the aim was to get a leverage effect for the EFSF of four or five times.
A strengthened bailout fund is seen as crucial in ensuring that the debt crisis doesn’t engulf Spain and Italy, and European Council President Herman Van Rompuy said Thursday that the expansion plan for the EFSF should provide “a sufficient firewall against contagion.”
"We have reached an agreement which I believe lets us give a credible and ambitious and overall response to the Greek crisis," French President Nicolas Sarkozy told reporters, adding that "the results will be a source of huge relief worldwide."
But that remains to be seen as markets weigh in with their response. Though the new plan addresses the points considered most crucial, many analysts have contended that the bailout fund needs to be twice the size announced to be more than a temporary solution that merely buys Europe a bit more time.
Experts have also said Europe's banks may need double to triple the amount that officials agreed on in order to be on sound footing.
Still, the deal gives Europe a plan to tout at next week's key Group of 20 meeting in Cannes, France, where countries including China and the United States have been hoping to hear a report of major progress.