Eurozone deal agreed for Greece

27 October 2011

Banks will have to write off 50% of their Greek debts as part of the Euro Summit's proposals announced this morning.

Jose Manuel Durao Barroso, president of the European Commission, calls the raft of measures "a comprehensive package that confirms Europe will do what it takes to safeguard financial stability".

The summit's three-pronged proposal focuses on reducing Greek debt by wiping off 50% of private banks' debt held against Greece. This would reduce Greek debt from 160% of GDP to 120% by 2020.

The eurozone's central bailout fund will also be increased to €1 trillion (£880 billion) and the European banks must together provide another €106 billion of capital to protect themselves from future sovereign crises.

Leaders of the eurozone countries thrashed out the deal in response to growing concerns about the debt crisis, accentuated by Greece's problem.

The summit applauded other debt-ridden countries Spain and Italy for their efforts but says "further action is still needed".


Speaking yesterday evening, Prime Minister David Cameron said "good progress" had been made and that the agreed measures "hadn't been watered down".

"We made some good progress tonight. It's very much in Britain's interests that we sort out these problems and solve this crisis." 

Industry experts are reticent about the proposals. Dominic Rossi, global chief investment officer for equities at Fidelity Worldwide Investment, says the summit's deal isn't a "game changer".

He adds: "The 50% Greek writedown is an important step forward, although I would like to see more details. The Greek writedown sets a watermark for other European countries. How does Italy look on this basis?

"The eye of the storm will now move to Rome and its fragile government. I don't think yields on Italian debt will fall on the back of this agreement for long."

Rossi expects economic growth to remain restrained and that equities will continue to be cheap.

This morning, the markets reacted positively; the FTSE 100 opened up 2.08% (or 115.39 points) to 5668.63. Stocks in Germany, France and the US have also gone up. 

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