Gabriele Steinhauser and Sarah Dilorenzo, AP Business Writers, On Thursday October 27, 2011, 1:06 am EDT

BRUSSELS (AP) — European leaders clinched a deal Thursday they hope will mark a turning point in their two-year debt crisis, agreeing after a night of tense negotiations to have banks take bigger losses on Greece’s debts and to boost the region’s weapons against the market turmoil.

After months of dawdling and half-baked solutions, the leaders had been under immense pressure to finalize their plan to prevent the crisis from pushing Europe and much of the developed world back into recession and to protect their currency union from unraveling.

The euro surged on the news of the full plan — an early sign that investors may welcome it.

“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 told reporters after the meeting broke Thursday morning. “Because of the complexity of the issues at stake, it took us a full night. But the results will be a source of huge relief worldwide.”

The strategy unveiled after 10 hours of negotiations hit upon the three points expected for weeks. These include a significant reduction of Greece’s debts, a shoring up of the continent’s banks, partially so they could sustain losses on Greek bonds, and a reinforcement of a bailout fund so it can serve as a euro1 trillion ($1.39 trillion) firewall to prevent larger economies like Italy and Spain from being dragged into the crisis.

After several missed opportunities, the hashing out of a plan was a success for the eurozone, but the strategy’s effectiveness will depend on the details, which will have to be finalized in the coming days and weeks.

“Will the sound of 1 trillion euros do the trick and ‘wow’ the markets or will the markets perceive this as smoke and mirrors?” Heather Conley, director of Europe program for the Center for Strategic and International Studies, asked before the official announcement of the plan. “If the past two years has told us anything, it never appears to be sufficient.”

The most difficult piece of the puzzle proved to be Greece, whose debts, the leaders vowed, would fall to 120 percent of its GDP by 2020. Under current conditions, they would have ballooned to 180 percent. For more visit: Business Standard

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