Debt crisis in Europes Eurozone had threatened to derail the world economy, but an agreement reached in Brussels boosts the markets and buys some more time.
The debt crisis deal that was thrashed out by members of the Eurozone was aimed at preventing the crisis that has engulfed Greece from spreading to larger economies, principally Italy and Spain.
The details of the new debt crisis deal are sketchy but the main components are that the banks holding Greek debt would accept a 50% loss and all banks must raise more capital to protect against possible future defaults.
The Greek Prime Minister hailed the debt crisis deal as a new day for Greece and for Europe as it cut his countries debt down by a massive 50%.
The raising of more capital by banks could mean that further help is needed by Governments to make this happen. Another bank bail-out would not go down well with an angry public.
The Eurozone bailout fund will also be boosted from 440 billion euros to about 1 trillion euros (approx. $1.4 trillion) although the mechanism for that has yet to be worked out, a critical and controversial idea in itself.
The side effect of all this quick political and financial crisis management is that the eurozone is beginning to look more and more like a super state.
The situation and the intended course of action by those political leaders involved inevitably leads to even tighter integration between the countries financial mechanisms.
Already a new ‘euro commissioner’ position with great powers has been announced and it is possible that people in the street will look back on this moment and it might suddenly hit them what the long term implications for their independence could be. Political leaders might say they had no choice.
The markets and the euro reacted positively to the news, for the moment they seem happy that after months of deriding policy makers for not doing enough to tackle the euro crisis, they have finally confronted the problem.
Photo: Davide “Dodo” Oliva