July 22, 2011
Euro-area leaders redoubled efforts to end the 21-month sovereign bond crisis as they erected a firewall around Spain and Italy and risked temporary default to lighten Greece’s debt burden.
After eight hours of talks in Brussels, leaders announced 159 billion euros ($229 billion) of new aid for Greece late yesterday and cajoled bondholders into footing part of the bill. They also empowered their 440-billion euro rescue fund to buy debt across stressed euro nations after a market rout last week sparked concern the crisis was spreading. The fund can also aid troubled banks and offer credit-lines to repel speculators.
Greek, Spanish and Italian bonds rose after officials drew concessions from Germany, the European Central Bank and investors for a twin-track strategy to support Greece and ensure its woes don’t spread. The summit is the latest in a running- battle to resolve the crisis amid calls this week for tougher action from U.S. President Barack Obama and the International Monetary Fund.
“These measures are welcome because they create the best possible conditions for Greece and other peripheral countries to put their houses in order and hence limit the risk of contagion,” said Marco Valli, chief euro-area economist at UniCredit SpA in Milan. “Still, the market will continue to price some probability that troubled countries will not be up to the challenge.”
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