European leaders have sealed a three-part deal which they hope will convince markets they have an effective response to the growing economic crisis. Meanwhile, the White House is pushing relief for student loans ahead of expected positive American third-quarter growth figures this week.
Europe's Three-Part Deal
In the early hours of Thursday morning, officials in Brussels reached an agreement with banks on a voluntary 50 percent write-off of Greek debt. Private lenders were previously opposed to taking such huge losses, but a compromise has now been reached.
At the summit, European Union officials also approved a complex mechanism for boosting the firepower of the eurozone's bailout fund, with reports saying the fund may be quadrupled to €1 trillion (US$1.39 trillion).
Finally, leaders agreed on a plan to force Europe's banks to raise new capital, €106 billion by June, ensuring they will be insulated them from potential sovereign debt defaults.
The package was announced by French President Nicolas Sarkozy after midnight, at the close of almost 10 hours of emergency summit talks aimed at hammering out measures to contain Europe's debt crisis.
"The result will relieve the whole world that was expecting a decision that was strong from the eurozone," Mr. Sarkozy said at a press conference in Brussels.
The announcement has already helped lift the euro and global markets, with investors feeling more optimistic for the outlook for the region's growth and single currency.
Wednesday's talks were critical for Europe's future, with German Chancellor Angela Merkel warning that the peace and prosperity Europe has enjoyed for generations could be put at risk if the euro collapsed.
Report: European leaders reach agreement on plan to stem debt crisis [Washington Post, 27 Oct 2011]
Report: European Union reaches key agreement on Greek debt [BBC News, 27 Oct 2011]
In an effort to convince European leaders that his country is capable of meeting its budget goals, Italian Prime Minister Silvio Berlusconi also vowed on Wednesday to raise money from asset sales, increase Italy’s retirement age and relax labour laws.
“We are aware of the need to present a comprehensive plan of reforms,” Mr. Berlusconi said in a letter that he presented to EU leaders, "we are aware that our debt is too high and our growth too limited.”
According to reports, the asset-sales plan would be completed by November 30. Mr. Berlusconi has pledged to raise Italy's retirement age to 67 by 2026, from about 65 currently for men, and overhaul labour market laws to make layoffs easier. Mr. Berlusconi also promised to present a more detailed plan for boosting growth by November 15, to be implemented within the next eight months.
European leaders had earlier pushed Italy to deal with its struggling economy.
Report: Italy pledges reforms as Europe seeks to end debt crisis [LA Times, 26 Oct 2011]
Meanwhile, reports have emerged claiming that French President Nicolas Sarkozy plans to call Chinese leader Hu Jintao this week to ask for contributions from China to Europe's debt-crisis fight. Klaus Regling, the Chief Executive Officer of the European Financial Stability Facility, the eurozone's bailout fund, is also expected to visit China this week to woo investors.
Yesterday, the state-owned China Daily newspaper reported that China and other top emerging economies had agreed to help eurozone countries by contributing to the bailout fund.
Report: Sarkozy plans to tap China for Europe help [Sydney Morning Herald, 27 Oct 2011]
Report: EU says bailout fund chief to visit China [AFP, 26 Oct 2011]
Over in the United States, President Barack Obama has said he will use his executive authority to provide relief for Americans repaying their student loans. The announcement is part of Mr. Obama's plans to take steps to boost the US economy despite deadlocks in Congress.
First, he will speed up implementation of a measure already passed by Congress on the issue, and will also allow borrowers to consolidate their loans with a lower interest rate than before.
The White House estimates as many as 7.4 million could benefit from these changes and says some borrowers could reduce their payments by hundreds of dollars a month.
Report: Obama plans student loan relief [Chicago Sun-Tribune, 26 Oct 2011]
On Thursday, the US government is scheduled to release its first estimate of third-quarter US Gross Domestic Product growth. Analysts say the report is expected to show a sharp acceleration in economic growth from the first half.
Despite the financial markets’ mini-crash in early August due to the US credit-rating downgrade and Europe’s continuing debt crisis, American consumers’ spending actually picked up in the third quarter. According to previous government figures, US retail sales jumped 1.1 percent in September from August, the best growth since February.
People may be feeling worse about the economy, but how they feel and what they do apparently are two different things.
Still, many economists believe that overall US growth will decelerate again in the current quarter. Consumers may run out of buying power as incomes remain squeezed. However, consumers may also decide they would rather spend than save, as current interest rates in the US offer little incentive to put money aside.
Analysis: U.S. recession fears fade as economy shows more strength [LA Times, 26 Oct 2011]