The crisis plan approved by European leaders on Thursday set off celebrations on global stock markets and led officials to assert that they had turned a corner in the battle to rebuild confidence in the euro region.
But many market analysts cautioned that the 15-page plan, hammered out over late-night brinkmanship in a government office building in Brussels, remains very much a work in progress. Key details are uncertain, they say, and a slowing European economy could throw the programme off course.
In the flush of their dramatic 3 am announcement of a breakthrough in marathon negotiations, European officials made claims for the programme that ranged from the grand to the unverifiable.
Greek Prime Minister George Papandreou said the expected 50% cut in what the country owes to banks and other private lenders had lifted “a burden from the past” and will give his country financial breathing room to recover. French President Nicolas Sarkozy said it would provide $1.4 trillion to prop up Spanish and Italian bonds, though details on the mechanics of that were scant.
Still, the plan seemed to begin untying the knots at the centre of the euro region’s troubles: Banks will get fresh capital from either private sources or taxpayers. Weakened governments will have more help to hold down their borrowing costs. Greece will get outright debt relief and more time to overhaul its economy.
The United States has been pushing for the region to act more forcefully to resolve the debt crisis. The Obama administration had urged some more dramatic and fast-acting fixes that European officials rejected. President Barack Obama said the new plan provides “a critical foundation for a comprehensive solution to the euro-zone crisis.”
But, after watching the problems of Greece fester into a global threat, Obama also emphasised that follow-through is crucial. “We look forward to the full development and rapid implementation” of the bailout plan, the US President said.
“Even if it probably was not the final word on the crisis, it is again another important step in the right direction,” analysts from ING said in a research note that conveyed a widely held feeling that the programme was constructive but will need time before its impact is clear.
(In exclusive partnership with The Washington Post)