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European leaders agree on plan to cut Greece's debt

BRUSSELS — European leaders agreed this morning on a crucial plan to reduce Greece's debts and provide it with more rescue loans so the faltering country can eventually dig out from under its debt burden.

After a marathon summit, EU President Herman Van Rompuy said the deal will reduce Greece's debt to 120 percent of its GDP in 2020. Under current conditions, it would have grown to 180 percent.

That will require banks to take on 50 percent losses on their Greek bond holdings — a hard-fought deal that negotiators will now have to sell to individual bondholders.

Van Rompuy also said the eurozone and International Monetary Fund — which have both been propping the country up with loans since May 2010 — will give the country another 100 billion euros, about $140 billion. That's slightly less than the amount agreed in July, presumably because the banks will now pick up more of the slack.

"These are exceptional measures for exceptional times. Europe must never find itself in this situation again," European Commission President Jose Manuel Barroso said afterward.

The question of how to reduce Greece's debt load had proven the sticking point in European leaders' efforts to come up with a grand plan to solve its debt crisis.

But it was just one of three prongs necessary to restore confidence in Europe's ability to pay its debts and prevent the 2-year-old crisis from pushing the continent and much of the developed world back into recession.

The first details of such a plan emerged hours earlier, when European Union leaders said they would force the continent's biggest banks to raise 106 billion euros, or $148 billion, by June — partly to ensure they could weather expected losses on Greek debt.

Van Rompuy also said the eurozone would boost its bailout fund to about 1 trillion euros, or $1.4 trillion, to protect larger economies like Italy and Spain from the market turmoil that has pushed three countries to need bailouts.

"We have reached an agreement which I believe lets us give a credible and ambitious and overall response to the Greek crisis," French President Nicolas Sarkozy said as the meeting broke this morning. "The results will be a source of huge relief worldwide."

European leaders agree on plan to cut Greece's debt 10/26/11 [Last modified: Wednesday, October 26, 2011 11:14pm]

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