European leaders agree on plans to shore up banks in effort to contain debt crisis

10-27-2011 • Washington Post

ATHENS — European leaders moved early Thursday to stem the debt crisis gripping the continent by agreeing to a plan that imposes steep losses on investors holding troubled Greek bonds and boosts the firepower of the region’s bailout fund to at least a trillion dollars.

After marathon negotiations that continued well past midnight, European leaders said banks and other major investors in Greek bonds agreed to take losses of up to 50 percent. This concession was meant to help prevent the Greek government from defaulting on bills it cannot pay and avoid an even costlier shock to the European financial system.

The losses are much larger than private investors accepted under a deal this summer. Since then, Greece’s economy has steadily eroded, making it even harder for the government to repay its bonds.

The question of how to structure a new refinancing plan for Greece and divide the costs of rescuing it has been at the center of negotiations. Other elements of the plan were dependent on European officials reaching an agreement with negotiators for major banks, which had been balking at taking bigger losses.

Graham Watson, a member of the European Parliament, talks about steps taken by the region's heads of state to solve the debt crisis and the need for the U.S. to implement "similar" measures to address its economic woes. He speaks from Strasbourg with Francine Lacqua on Bloomberg Television's "On the Move." (Source: Bloomberg)