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Europe reaches debt response agreement -

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World financial markets have breathed a huge sigh of relief as Europe agrees to a plan involving a
50 per cent write-down of Greek debt and an expansion of the bailout fund to 1 billion euros.


TONY JONES, PRESENTER: World financial markets have breathed a sigh of relief following the
announcement of a deal on the European debt crisis.

For a while the emergency summit in Brussels looked like it was going to collapse, but European
leaders bargained long into the night and clinched an agreement.

It's not as ambitious as some had wanted, but European leaders hope it will be enough to stop the
crisis spreading to larger eurozone economies such as Italy.

The Greek prime minister, George Papandreou, said his country could now start a new chapter, but on
the streets of Athens many remained sceptical.

Europe correspondent Philip Williams reports.

PHILIP WILLIAMS, REPORTER: The deal was done, now the people could have their say, but in the
streets of Athens the agreement to slash Greek debt was not exactly welcomed.

VOX POP (voiceover translation): I don't think it was a good deal, but it was inevitable. At this
moment, Greece has gone bankrupt.

VOX POP II (voiceover translation): It's a murky deal. Everything here gets worse by the day. God
help us.

PHILIP WILLIAMS: But it was the market reaction that eurozone leaders cared about, and to the
relief of everyone, they liked it. First in Asia, then in Europe, markets quickly rallied strongly,
a palpable sense of relief. It may not be business as usual, but this was not the day of disaster
many had feared.

ROBERT HALVER, BAADER BANK: We have definitely hope, definitely, but the problem is we have to
focus more on economic reforms, even in Italy because Italy is still the main patient of the
eurozone right now.

PHILIP WILLIAMS: But as the 17 eurozone leaders gathered in Brussels, they all knew the dangers.
The world hoped, expected, big things of them. But in the days and weeks preceding this, the
definitive summit, cohesion and common purpose were scarce commodities.

Angela Merkel warned of the greatest crisis since the Second World War. Italy's Silvio Berlusconi's
political life was on the line and of course the Greeks could tell everyone first-hand the cost of
failure. There were tense hours ahead.

Imagine his relief when his fellow eurozone leaders finally agreed his country's debt would be
slashed, the banks would accept the so-called haircut: a 50 per cent write-off of Greek debt.

GEORGE PAPANDREOU, GREEK PRIME MINISTER (voiceover translation): We've managed to escape from this
trap. The fact that we are still here today is an achievement. Today we can close a chapter on the
past and start work on a new future for our country.

PHILIP WILLIAMS: Also relieved, Silvio Berlusconi. He had to offer a new austerity and reform
package because of his country's burgeoning debt. In return, Italy gets the benefit of the
newly-leveraged one trillion euro bailout fund which can be deployed to stop contagion.

SILVIO BERLUSCONI, ITALIAN PRIME MINISTER (voiceover translation): The guarantee is that if we
don't honour our commitments, we'll lose credibility. These are commitments and Italy will honour
them like it always has.

PHILIP WILLIAMS: And from another embattled economy, Ireland, recognition the much-criticised
eurozone had finally got its act together.

ENDA KENNY, IRISH PRIME MINISTER: It's recognition that at long last European leaders focused on
the fundamental questions and made decisions in a decisive manner about them. And I hope this
brings about a real improved reaction from all the markets and allows Europe to focus on growth and
job creation and getting people back to work.

PHILIP WILLIAMS: But perhaps the greatest satisfaction lay with the German chancellor, Angela
Merkel. This was largely her plan, demanding more accountability of her neighbours at less cost to
increasingly impatient German taxpayers.

ANGELA MERKEL, GERMAN CHANCELLOR (voiceover translation): I believe we've lived up to expectations
and done the right thing for the eurozone. This brings us one step further along the road to a good
and sensible solution. I've always said we won't be able to resolve this overnight, but this will
now bring stability.

PHILIP WILLIAMS: The size and structure of the bailout fund was perhaps the most anticipated
element of the deal. Talk had stretched to three trillion euro. In the end, it's one trillion, at
the bottom of hopes but it appears, so far, enough.

YVES LETERME, BELGIAN PRIME MINISTER: The firewall is really a strong firewall with up to thousand
billion euro, US$1,400 billion and we have very strong decisions in terms of economic governance.

PHILIP WILLIAMS: It's the stricter oversight that gives respective governments more confidence in
each other. The new rules should avoid the Greek situation where debt figures were simply
fabricated. But in the end, all of this is about confidence.

implemented, as you said, as rapidly and effectively as possible, and I have only to say that what
counts is the level of confidence. What I heard in this European council was the expression of the
will of the heads, and that is, in my opinion, extremely important.

PHILIP WILLIAMS: There are many details to be decided. Some of the billions may come from China.
Already there are discussions. And other emerging economies may also want to park some of their
national pot here in Europe.

So far, so good, but this isn't the end of the crisis. You may remember back in July there was
another summit and similar predictions the crisis was over. It wasn't. What this does do is buy
valuable time.

Philip Williams, Lateline.