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European leaders met through the night in Brussels and finally emerged Thursday with a debt deal they say is wide-ranging. They're hopeful it will guide the continent out of the widening debt crisis that started with Greece. But it's unclear whether they have the political will and economic flexibility to implement it.
As talks began Wednesday in the Belgian capital — the second EU meeting in four days — Greek Prime Minister George Papandreou said the summit was about not just saving the euro currency but also safeguarding the ideals at the core of a united Europe: "Peace and cooperation amongst our nations, social cohesion and solidarity without prejudice amongst our people."
After some eight hours of talks that ended around 4 a.m. local time, eurozone leaders said they had secured an agreement for banks to take a voluntary 50 percent loss on Greek bonds. The plan aims to reduce Greek debt to 120 percent of gross domestic product by 2020, from its current 160 percent.
The officials also said they would boost the power of the euro area's bailout fund to around $1 trillion by offering insurance to debt buyers, or through a special fund to be set up to attract investment from China, Brazil and elsewhere.
Building Safeguards Against Default
European Council President Herman Van Rompuy conceded that key details on implementing that part of the plan remain to be worked out. "It is not easy to explain, but we are going to do more with our available money. ... Banks have been doing this for centuries," he added.
There was also agreement to make European banks significantly boost their capital reserves by the end of June to better protect them from possible government debt defaults. In July, banks agreed to take a 21 percent loss and fiercely resisted a deeper cut.
But in a statement Thursday morning, the head of the group representing big banks called the deal a "comprehensive package" to stabilize Europe. German Chancellor Angela Merkel said the plans should reassure the world about the future of the eurozone.
"I believe we were able to live up to expectations, that we did the right thing for the eurozone," Merkel said, "and this brings us one step further along the road to more stability and a stable union."
Leaders also announced plans to improve economic governance of the eurozone. European heads of state were under pressure from the markets and world capitals to forge a deal ahead of a key meeting of the Group of 20 in France early next month.
'Already Too Late'?
Sony Kapoor, the director of the economic think tank Re-Define, says eurozone leaders are finally tackling the heart of the debt crisis, and their solutions are pointing in the right direction. But he says eurozone leaders have wasted too much time.
It's already too late, he says, for the several million Europeans who have lost their jobs, and too late for the eurozone economies that are slipping into recession. Kapoor says the financial world is right to be skeptical that the leaders can expeditiously implement yet another rescue plan.
"It is going to take a massive, gargantuan, unprecedented effort of political will that we have so far not seen from our leaders," he said. "They have been parochial, they have been petty, they have procrastinated. And they're going to have to get their act together. Otherwise, this is already too late."
On Italy — Europe's third largest economy — eurozone leaders put enormous pressure on Prime Minister Silvio Berlusconi to make good on specific reform plans, including big changes to government pension plans and pledges to boost the retirement age. It's not at all clear that Berlusconi's weak ruling coalition can deliver on those promises.
The European Commission's president, Jose Manuel Barroso, said Thursday morning that now it's time for Italy to deliver.
"The key is implementation," Barroso said. "This is the key. It is not enough to make commitments. It is necessary now to check if they are really implemented."
Barroso may as well have been speaking about the entire new plan to rescue the euro.