WASHINGTON — A compromise euro-debt plan partially hammered out Wednesday by European leaders amounts to an incomplete step forward, experts said, and thus is unlikely to end soon the region's widening debt crisis, which menaces U.S. and global financial markets.
Heads of state representing the 27 European Union members met deep into the night Wednesday in Brussels, looking for ways to boost a bailout fund, prepare for a structured default on Greece's debt and prevent borrowing costs from crippling struggling economies such as Italy and Spain.
Leaders had promised solutions by Wednesday; they'd promised solutions back in July, too. This week's summit, dubbed the summit to end all summits since these talks have recurred for 18 months, was supposed to happen Sunday. Then it was postponed until Wednesday, the same day euro finance ministers had scheduled their own meeting before they scrapped it and left it to the elected officials to find a compromise.
In the end, leaders agreed to rough outlines and left the heavy lifting for the weeks ahead.
"They set themselves up with a hurdle. They're definitely not going to jump that hurdle," said Douglas Elliott, who heads financial research for the Brookings Institution, a center-left policy research organization in Washington.
European leaders did appear to set higher buffer requirements for banks to hold more capital beginning this year, to ensure that they can survive losses should more of their government bonds go bust. They also appeared to set a target for themselves of reducing Greece's debt to a level equal to about 120 percent of its gross domestic product by 2020. GDP is the broadest measure of a country's goods and services; Greece's debt load is on a trajectory to be one-third higher than that by next year.
For the punishing load to come down, Greece needs to restructure its existing debt. Negotiations have been stuck for days on how much of a write-down banks and other financial firms that hold Greek bonds would have to take under a deal to replace old bonds with new ones that pay investors a higher return.
Negotiations focused on losses in the range of 40 percent to 60 percent of the value of existing Greek bonds.
Charles Dallara, the managing director of the Institute of International Finance, the trade group for big international financial institutions, is representing private-sector investors in discussions with European officials. Late Wednesday he issued a statement that said: "There has been no agreement on any Greek deal or a specific 'haircut.' We remain open to a dialogue in search of a voluntary agreement. There is no agreement on any element of a deal."
Absent a deal on Greek debt, leaders were finding it difficult to finalize an agreement on expanding the European Financial Stability Facility, the big bailout fund that would backstop new debt issued by heavily indebted European nations. Several published reports Wednesday out of Europe said leaders planned to boost this fund fourfold, to a range of about 1 trillion euros, or $1.38 trillion.
Analysts feared that the lack of a clear resolution might send global markets skidding, but investors seemed willing to give Europe the benefit of doubt.
"It is much better than they had before, but I don't think this is going to put the issue to bed completely," said Nariman Behravesh, the chief economist for forecaster IHS Global Insight. "They avert a meltdown, which is a good thing. ... Bottom line, it's clearly much better than they had before."
U.S. stocks bounced all over the map Wednesday on rumors out of Europe, but they ended the day in positive territory on the backs of better-than-expected housing numbers, other positive economic data and optimism that Europe was moving toward a resolution.
The Dow Jones industrial average finished up 162.42 points to close at 11,869.04. The S&P 500 rose 12.95 points to end at 1242 and the NASDAQ closed up 12.25 points to finish at 2650.67.
European leaders retain some wiggle room. They're expected to clarify more details as negotiations continue ahead of a meeting by the heads of state of the 20 most industrialized economies_ the so-called G-20_ Nov. 3-4 in Cannes, France. That gives them another week for hard bargaining.
There will be financial pain in Europe even when the deals are complete, because what's being agreed to is sure to restrict credit in European economies. Banks will be forced to take losses on the Greek bonds they own, and that will set a precedent for potential losses in other countries that face heavy debt loads, such as Ireland and Portugal. And banks are going to be forced to keep more capital on hand as a buffer against losses, making them less likely to lend.
"The implications of this are very sluggish growth or a mild recession in Europe," Behravesh said, adding that would shave a few tenths of a percentage point off sluggish U.S. growth rates, too.
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