Euro zone: The euro zone still faces major fiscal and economic problems, but it has taken significant steps towards tackling the debt crisis. Greece will get some relief, and the monetary union bailout fund, the European Financial Stability Facility, will take on a larger role, dealing both with possible market disruptions and longer-term financial issues. This will help head off contagion in other indebted countries. And, in exchange for these serious concessions from Germany, euro members have agreed on the principle of a —rather mild — contribution from Greece’s private creditors.
The plan still has holes that must be filled. But the summit has shown that euro governments are able to agree - even after weeks of exposing their divisions in a self-destructive manner. In recent weeks, the European Central Bank had hinted it would use the nuclear option of dropping its support for Greek banks if the plan led to even the smallest ‘selective’ default. But now the ECB has got what it really wanted: stronger and firmer commitments by governments to shoulder more responsibility, and not leave the bank to clean the mess. Some Greek bonds may be subject to selective defaults, but governments will ultimately pick up the tab for the country's banks funding, and the EFSF contribute to their recapitalisation. The ECB has also managed to get euro governments to promise they will not consider private sector involvement ever again.
Euro leaders have left open the question of the EFSF's future size. Extending the fund’s remit will require parliamentary approvals, and it remains to be seen whether its ¤440 billion potential firepower will be enough for its new missions. A large chunk is already committed to help Ireland and Portugal.
According to euro leaders’ estimates, the plan could end up cutting Greece’s debt load by 24 percentage points of gross domestic product. But debt was forecast to peak at more than 170 per cent of GDP in 2012, so Athens will continue to struggle under a heavy debt load. Other euro countries will also struggle for years as they adjust their finances and try to boost growth. But weaker states now know they can count on a firmer support. That should help persuade markets not to bet against the euro zone's new-found resolve.
