Europe Debt Crisis: €2 Trillion Deal to Save Greece and Euro

During an IMF meeting inWashingtondominated by fears that Greek debt woes could trigger a wider European crisis, threatening banks and hurting the world economy, Greek Finance Minister Evangelos rejected any talk of bankruptcy.

German and French officials have come up with a three-pronged deal which aims to end the eurozone's sovereign debt crisis before it spirals completely out of control. Photo: Jason Mark/Flickr

The three-pronged deal would set up a massive fund to create a “firewall” around the most indebted eurozone countries, allow for an “orderly” Greek default on at least some of its liabilities, and bail out European banks most at risk from debt.

The European Union and IMF handed Greece a 110 billion euro bailout to save it from bankruptcy last year in exchange for austerity measures and reforms, but markets remain unconvinced a debt mountain of over 160 percent of GDP is sustainable.

German and French officials came up with the strategy which aims to end the eurozone’s sovereign debt crisis before it spirals completely out of control, plunging the world back into recession.

Germany- the key player in the eurozone – initially rejected the suggestion but is understood to have been sparked into action on a variation of the plan by the recent turmoil on world financial markets.

“Greece will always be in the euro and Greece will never go bankrupt because this would be destructive for the euro zone and for many other countries beyond the euro zone,” Venizelos said in a statement after meeting his German, French and Italian and Belgian counterparts.

The EU said it would not allow either an uncontrolled default of Greek debt or the country to leave the eurozone, the bloc’s economic commissioner said.

The eurozone deal, being brokered by the G20 group of nations, would seek to “ring fence” the crisis aroundGreece,PortugalandIreland- preventing it from spreading to major EU economies such asItalyandSpain.

The European Union and IMF handed Greece a 110 billion euro bailout to save it from bankruptcy last year in exchange for austerity measures and reforms, but markets remain unconvinced a debt mountain of over 160 percent of GDP is sustainable.

“An uncontrolled default or exit of Greece from the eurozone would cause enormous economic and social damage, not only to Greece but to the European Union as a whole, and have serious spillovers to the world economy,” Economic and Monetary Affairs Commissioner Olli Rehn said. “We will not let this happen,” he added.

Greece, crucially, would be able to default on at least some of its more than 340 billion euro debts but remain inside the eurozone. The Greek government’s private creditors would bear most of the increased costs.

Evangelos Venizelos warned: “The situation is extremely critical and I could say dangerous. There is great nervousness in the eurozone, the European banking system and the world economy.”

Slow implementation of unpopular fiscal measures and reforms prompted the abrupt departure of EU, IMF and ECB inspectors, known as the troika, fromAthensearlier this month, with a key sixth instalment of the bailout loan at risk.Greecehas said it has enough cash until next month.

“Greeks know these are critical times, that the sacrifices, the injustices and pressures are the price we pay for mistakes of the past, mostly the responsibility of governments and politicians,” Venizelos said. “What we have done in the past few weeks, has sent a strong international message.”

Christine Lagarde, the managing director of the International Monetary Fund, has said: “There are dark clouds over Europe and there is huge uncertainty in theUS. And with that we could risk a collapse in global demand.

“Let’s remove the clouds and remove the uncertainty. Easier said than done, and it requires clearly a collective action,” she added. [via The Telegraph, Reuters and BBC]

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