From the NEW YORK TIMES:
European leaders, in a significant step toward resolving the euro zone financial crisis, early Thursday morning obtained an agreement from banks to take a 50 percent loss on the face value of their Greek debt…
The accord was reached just before 4 a.m. after difficult bargaining. The severe reduction would bring Greek debt down by 2020 to 120 percent of that nation’s gross domestic product, a figure still enormous but more sustainable for an economy driven into recession by austerity measures.
The leaders agreed on Wednesday on a plan to force the Continent’s banks to raise new capital to insulate them from potential sovereign debt defaults. But there was little detail on how the Europeans would enlarge their bailout fund to achieve their goal of $1.4 trillion to better protect Italy and Spain…
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EDITOR: Requiring the Greek bond owners to take a 50% “haircut” is saluatory in four ways: 1) It chastens lenders to be more prudent in evaluating loans; 2) It provides relief for the Greek population; 3) By providing relief, it enables the Greek economy to recover more quickly and thus make good on the 50% plus interest they will continue to owe; and 4) It protects the French and German population from their governments ‘monetizing’ the losses, which is done through complicated maneuvers which result in the transfer of the losses from the banks to the tax payers. (We did much the same in the US to enable the banks to repay their TARP loans.)
