Europe Makes a Debt Deal That Should Keep the World From Exploding

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Italian Prime Minister Silvio Berlusconi (L) smiles as he walks past Danish Prime Minister Helle Thorning-Schmidt during a working session of the European Council at the Justus Lipsius building, EU headquarters in Brussels, on October 26, 2011. The European Commission called on eurozone leaders to deliver a "credible" response to the debt crisis at a crunch summit today as they are scheduled to announce in Brussels a plan to boost confidence in the eurozone after months of indecision and uncertainty. The EU is trying to prevent a full-blown Greek default and limit contagion within the eurozone after Ireland and Portugal also required bailouts and Italy begins to look vulnerable.      AFP PHOTO/ ERIC FEFERBERG (Photo credit should read ERIC FEFERBERG/AFP/Getty Images)
Italian Prime Minister Silvio Berlusconi (L) smiles as he walks past Danish Prime Minister Helle Thorning-Schmidt during a working session of the European Council at the Justus Lipsius building, EU headquarters in Brussels, on October 26, 2011. The European Commission called on eurozone leaders to deliver a "credible" response to the debt crisis at a crunch summit today as they are scheduled to announce in Brussels a plan to boost confidence in the eurozone after months of indecision and uncertainty. The EU is trying to prevent a full-blown Greek default and limit contagion within the eurozone after Ireland and Portugal also required bailouts and Italy begins to look vulnerable. AFP PHOTO/ ERIC FEFERBERG (Photo credit should read ERIC FEFERBERG/AFP/Getty Images) Photo: ERIC FEFERBERG/2011 AFP

European politicians and bondholders have managed to reach a deal that should — at least temporarily — keep the global economy from descending into a spiral of doom. Under the terms of the agreement drafted this morning in Brussels, European banks will take a 50 percent "haircut" (that means loss) on Greek debt. The deal, which hinged on the crucial support of Germany and extra funds for Greece from the IMF, is supposed to reduce Greek debt to just (just!) 120 percent of its GDP within the next decade.

“The world is looking at Germany, whether we are strong enough to accept responsibility for the biggest crisis since World War II,” chancellor Angela Merkel told the German parliament, bringing up the ultimate German guilt trip and reminding them that they didn't want to be three for three on the wrong side of major European crises in the last 100 years. “It would be irresponsible not to assume the risk.” German lawmakers responded by doubling the size of the Eurozone emergency bailout fund to $1.4 trillion. It's still unclear where precisely the agreed-upon extra bailout money will come from, though. (Greece, reached for comment, said, money needs to come from somewhere?)

However, Eurozone leaders remain worried about growing fiscal problems in Greece's Mediterranean neighbor. "Attention has focused on Italy because its government seems incapable of responding to the crisis, which has undermined the markets’ faith in Europe’s capacity to solve its problems," reports the Times, citing Silvio Berlusconi's weak showing at the summit. (He brought only a "letter of intent" for resolving the crisis, rather than a fleshed-out plan. On the plus side, he managed to avoid audibly voicing any further comments about Angela Merkel.) And as if on cue, Italian lawmakers broke out into a fistfight and literally grabbed one another by their throats during economic-reform discussions yesterday, which is certainly one way of responding to a crisis.

Europe Agrees to Basics of Plan to Resolve Euro Crisis [NYT]