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Euro debt deal like new Marshall Plan

July 22, 2011 at 3:30 AM   |   Comments

BRUSSELS, July 22 (UPI) -- The $157 billion Greece bailout, and defenses to keep the crisis from spreading, may bring about a 17-nation economic government, France's president said.

"By the end of the summer, [German Chancellor] Angela Merkel and I will be making joint proposals on economic government in the eurozone," Nicolas Sarkozy said.

"Our ambition is to seize the Greek crisis to make a quantum leap in eurozone government," he said. "The very words were once taboo. We will give a clearer vision of the way we see the eurozone evolving. We have done something historic. There is no European Monetary Fund yet -- but nearly."

Asian stock indexes rose on the news Friday, with Tokyo's Nikkei 225 index up about 1.25 percent and Hong Kong's Hang Seng index up about 1.75 percent in late afternoon trading.

Euro-sensitive stocks rose on a strong euro currency that traded near a two-week high against the U.S. dollar.

The eurozone deal, described by some as a new, homegrown Marshall Plan for Europe, was worked out in Brussels at an emergency summit of eurozone heads of state.

It transforms the 15-month-old eurozone rescue fund, known as the European Financial Stability Facility, into an ambitious and perhaps permanent European stability mechanism, officials said.

It also forces 20 percent losses for Greece's private creditors, which will have to agree to take part in buybacks of Greek bonds, rolling over Greek debt, or swapping maturing bonds, officials said.

The plan makes it almost certain Greece would become the first eurozone country to be deemed to be in some form of default on its sovereign debt.

The leaders also agreed to cut the rescue fund's once-lofty interest rates to a manageable 3.5 percent and extend 15-year loans to as much as 30 years.

The rate changes mean Ireland and Portugal's borrowing costs for their eurozone bailouts would also fall to 3.5 percent, officials said.

"We created a solid firewall and better fire-brigade equipment," European Union President Herman Van Rompuy said.

With its new power, the fund will be able to intervene to buy up the bonds of struggling debtor countries, to take preemptive actions to nip a debt crisis in the bud and to supply loans to struggling eurozone countries that would use the money to shore up and recapitalize their banks.

This aid could be given to eurozone countries not already in bailout programs.

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