Way out of the debt crisis
© 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.
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
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
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.
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.
Main results of the Euro Summit (pdf)
Euro Summit Statement (pdf)
Remarks by President Van Rompuy following the Euro
Euro Summit press conference webcast
European response to the debt crisis
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