European leaders reached an agreement on how to deal with the eurozone financial crisis, unanimously consenting after a night of tense negotiations to have banks take bigger losses on Greece's debts and to boost the region's weapons against the market turmoil.
After months of bad ideas and time-wasting, the leaders had been under immense pressure to finalize their plan to prevent the crisis from pushing Europe and much of the developed world into a deeper recession and to protect their currency union from unraveling.
As a result of the agreement, world stock markets surged higher Thursday on the news. Oil prices rose above $92 per barrel while the euro gained strongly - a signal investors were relieved at the outcome of the contentious negotiations.
"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. "Because of the complexity of the issues at stake, it took us a full night. But the results will be a source of huge relief worldwide."
The strategy unveiled after 10 hours of negotiations focused on three key points:
- Significant reduction in Greece's debts,
- Shoring up of the continent's banks, partially so they could sustain deeper losses on Greek bonds and
- Reinforcement of a European bailout fund so it can serve as a €1 trillion ($1.39 trillion) firewall to prevent larger economies like Italy and Spain from being dragged into the crisis.
After several missed opportunities, hashing out a plan was a success for the 17-nation eurozone, but the strategy's effectiveness will depend on the details, which will have to be finalized in the coming weeks.
The most difficult piece of the puzzle proved to be Greece, whose debts the leaders vowed to bring down to 120 percent of its GDP by 2020. Under current conditions, they would have ballooned to 180 percent.
To achieve that massive reduction, private creditors like banks will be asked to accept 50 percent losses on the bonds they hold. The Institute of International Finance, which has been negotiating on behalf of the banks, said it was committed to working out an agreement based on that "haircut," but the challenge now will be to ensure that all private bondholders fall in line.
"We can claim that a new day has come for Greece, and not only for Greece but also for Europe," said Greek Prime Minister George Papandreou, whose country's troubles touched off the crisis two years ago. "A burden from the past has gone, so that we can start a new era of development."
In addition to the €30 billion in bond guarantees, the eurozone leaders and IMF said they will give Greece €100 billion ($139 billion) in new loans.
However, there are some critics of the deal.
"It's already too late," said Sony Kapoor, the director of the economic think tank Re-Define in a recent NPR article. "For the several million Europeans who have lost their jobs, and too late for the eurozone economies that are slipping into recession."
Kapoor claims the financial world is right to be skeptical that the leaders can implement yet another bailout plan.
"It is going to take a massive, gargantuan, unprecedented effort of political will that we have so far not seen from our leaders," he said in the NPR report. "They have been parochial, they have been petty, they have procrastinated. And they're going to have to get their act together. Otherwise, this is already too late."
The Associated Press contributed to this story.