BRUSSELS-The Euro gained traction, global stocks rallied, oil prices increased and bond spreads narrowed early this morning following a marathon session by European leaders to stem debt issues by Greece and other countries.
The leaders cajoled Greek debt holders to accept 50% losses, as it was agreed to provide about $182 billion in aid to Greece, a second bailout for the country that has already received about $154 billion since May 2010. The move will reduce the debt ratio for Greece to 120% of its GDP.
The European leaders also agreed to raise more than $1.4 trillion in case further bailouts are necessary. French President Nicolas Sarkozy said at a press conference this morning that the leaders decided to use the resources from the European financial stability to put a front to the crisis. He said the leverage will increase by four to five times its current level.
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“In addition, we have mandated the European institutions to engage in discussions in order to cooperate more closely with the International Monetary Fund to attract new funding,” Sarkozy said. “These decisions are a major step forward in establishing a powerful firewall to prevent the crisis from spreading to other member states of the Euro area and beyond.”
He said the leaders also asked European banks to strengthen their capital base. “They will enhance the market price sovereign debt and reach a target capital of 9% equity,” Sarkozy said.
Christine Lagarde, managing director of the IMF, said she welcomes the leaders’ actions. “The (Greece) agreement reached on key parameters for private sector involvement is of the utmost importance to improve debt sustainability,” she said in a statement this morning. “It is based on a realistic assessment of the Greek economy and an appropriate burden-sharing between the private and official sectors.”
She said the agreement reached on a coordinated mechanism to recapitalize banks and strengthen their funding is a major step forward. “Restoring growth depends on a financially sound banking sector and reinforcing the banks' capital buffers is key,” Lagarde said. “This should be achieved mainly through the provision of additional capital and not by lower lending within or across countries. I welcome the decisions to strengthen economic and fiscal coordination within the euro area and the commitment to make the economic union commensurate with the monetary union.”
Following the move, the London Stock Exchange was up 2.53% and the Nikkei was up 2.04%, and the Euro climbed to $1.40. Oil prices hit $92.55 per barrel, up 2.61%.
As GlobeSt.com reported previously, debt problems in Europe and a lull in Asian investing has forced property risk taking into hiding again, with global investment capital expected to drop 4% to $316 billion by the beginning of 2012, according to a recent report by DTZ. However, the only cross-border property investment location to post positive numbers is the United States, where capital has increased 3% to $114 billion. More than half of all funds targeting single countries are investing in the US, DTZ says.
Before the decision, German Chancellor Angela Merkel said in a statement that extreme measures had to be taken. “The world is looking to Europe,” she said. “If the euro fails, Europe will have failed.”
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