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Way out of the debt crisis


<p>© European Union, 2011</p>

© European Union, 2011

The Euro Summit on 26 October agreed a comprehensive set of measures to address the current tensions in financial markets and restore confidence.

 

"We do not want to repeat some of the errors from the recent past," said Herman Van Rompuy, President of the European Council, who chaired the meeting. "In taking today's decisions, we lay the foundations for our future. All members of the Euro Summit are determined to follow this path."

 

Solution for Greece

 

The public debt of Greece should be reduced to 120% of GDP by 2020. A voluntary contribution was agreed with private creditors: on notional Greek debt held by them, the nominal discount will be 50%. Eurozone member states will contribute to this private sector involvement (PSI) package with up to 30 billion euros. A new EU-IMF multiannual programme for Greece, which will be put in place at the end of 2011, will finance up to 100 billion euros. 

 

Stronger EFSF

 

The Summit agreed that the resources of the European Financial Stability Facility (EFSF) should be enlarged without extending the guarantees provided by member states. Around one trillion euros could thus be leveraged in order to create a "firewall" against contagion from the debt crisis.

 

The EFSF has a lending capacity of 440 billion euros, with about 250 billion euros available once aid to Greece, Ireland and Portugal has been taken into account. This available capacity will now be boosted up to fivefold.

 

Raising confidence in the banking sector

 

Where appropriate, the member states should provide guarantees to the banks (the criteria and conditions for such guarantees will be coordinated at EU level) to facilitate their access to medium-term funding. This is necessary in order to avoid a credit crunch as well as to safeguard the flow of credit to the real economy.

 

National supervisors will require the banks - and this is a temporary measure - to bring the level of their highest quality capital to 9% by June 2012.

 

The banks' distribution of dividends and bonus payments should be constrained until the target of 9% is achieved.

 

The banks should first raise capital from private sources, including through restructuring and conversion of debt to equity instruments. If this is not possible, they can then seek support from national governments. If government support is not available either, recapitalisation in the euro area countries can be funded through a loan from the EFSF.

 

Governance

 

Leaders agreed on further strengthening of economic and fiscal coordination and surveillance. They approved ten measures to improve the governance of the Euro area. President Van Rompuy was given the mandate to identify possible steps to strengthen the economic union, including exploring the possibility of limited Treaty changes.

 

 

 

More information:

Main results of the Euro Summit (pdf)

Euro Summit Statement (pdf)

Remarks by President Van Rompuy following the Euro Summit (pdf)

Euro Summit press conference webcast

Eurogroup webpages

European response to the debt crisis

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