“We have to find a solution for the whole union,” said Jean-Claude Juncker, Luxemburg’s prime minister and president of the Eurogroup, as he entered today's emergency summit of European leaders in Brussels. “We can’t come up with new measures every other week.”
So did the summit succeed? According to the politicians, it did.
Herman van Rompuy, president of the European Council, broke the news to the media: “I am glad to announce we have reached an accord. We offer a solution to the Greek debt problem, and we will reform the management of the euro. We said we would not waver in the defense of the monetary union. We meant it.”
The help for Greece includes a second bailout package of 109 billion euros ($156 billion). The maturity period of Greek bonds will be increased from 7 to 30 years and the interest rates Greece has to pay will be lowered to about 3.5 percent.
“Greece will be able to repay all of its debts,” French president Nicolas Sarkozy said with conviction. But he was quick to add: “What we are doing for Greece, we will do for no one else.”
For the first time, private lenders will be part of the bailout. Mr. Sarkozy announced they would provide 135 billion euros ($194 billion) over 30 years. Asked if the measures constituted a partial default of Greece, Mr. Sarkozy refused to be drawn in: “I am not a rating agency,” he said. “I won’t be using these words.”
But for finance expert Vanessa Therrode, a partner with the law firm SJ Berwin in London, this is just semantics: “If they are extending the maturity of Greek bonds, it is a default. So, when Greece returns to the financial markets, the next time it needs money it will face skepticism from lenders.”
“The EFSF will be more flexible and effective,” said Mr. Van Rompuy. “In future we won’t be forced to wait for substantial damage to an economy before we can intervene.”
There are further reforms in the pipeline. By the end of the summer, France and Germany would publish proposals regarding economic governance in the eurozone, Sarkozy announced. “The influence of foreign rating agencies needs to be limited. We are thinking about the creation of a European rating agency.”
EU summits in Brussels hardly ever manage to raise much excitement among citizens of the union, but this was followed closely across the Continent and beyond.
Shares in Europe and North America jumped, particularly those of banks holding Greek debt, as reports of a breakthrough were leaked from the Justus Lipsius building, the headquarters of the European Union in Brussels.
The summit was preceded by a meeting of German Chancellor Angela Merkel and Sarkozy in Berlin Wednesday night. The seven-hour discussions, which included the president of the European Central Bank (ECB), Jean-Claude Trichet, brought agreement on a common German-Franco position as a basis for the Brussels talks. It was at that meeting that France dropped its proposal of a special tax on banks and agreed to have private lenders participate in the bailout package for Greece in return for German willingness to accept new powers for the EFSF.
“There’s a possibility Greece will need yet another bailout,” said Mr. Beattie. “Still, this could be a turning point in the eurozone crisis. Ireland and Portugal will now be able to receive much cheaper help.”
Greek Prime Minister George Papandreou was more optimistic: “We now have a package for a sustainable solution for Greece,” he said in Brussels. “This is a European success.”