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As Angela Merkel said, the world looked to this summit meeting. The European nations have met expectations, she declared. "This is an important step towards achieving greater stability". The summit, she said, had "done the right thing for the euro zone". We cannot wave a magic wand, but this is an important package that will help us improve stability and become more of a union for stability, said the Chancellor.

Debt to be cut by 50 percent

A key part of the summit meeting was reserved for negotiations with the banks in an effort to reduce Greece’s debt. The agreement reached provides for banks to cancel about half of the money owed by Athens. Total debt cancellation is put at 100 billion euros.

The euro-zone rescue fund, EFSF, is to put up 30 billion euros as a public-sector contribution to the Private Sector Involvement package which covers banks, investment funds and insurance companies.

The aim is to get the country’s debt down to 120 percent of GDP, as Angela Merkel explained. On the basis of the agreement reached with the banks, the euro-zone states also intend to offer Greece further assistance. Between now and 2014 Athens is to receive another loan worth 100 billion euros. The second Greek bail-out package, adopted on 21 July, will be modified accordingly.

Recapitalising banks

So as to protect themselves from the consequences of cancelling Greece’s debt, and from any other turbulence on the markets, the major European banks are to increase their contingency reserves. The EU states decided that they should raise their capital ratio to nine percent by the middle of next year. The European banking regulatory agency, the European Banking Authority (EBA), expects on the basis of initial figures that the banks will need about 106 billion euros to do so. German banks will require some 5.2 billion euros.

Euro-zone rescue fund (EFSF)    

The euro-zone rescue fund (EFSF) is to become more effective with the help of options to leverage resources amounting to about one trillion euros. The EFSF can thus offer risk insurance on government bonds issued by certain euro-zone states. The euro-zone states are also working on a second model in the form of special purpose vehicles to buy bonds in which state funds too may invest. Their contribution will be laid down in the course of further talks over the next few weeks.    

Italy and Spain pledge further reforms

Italy and Spain have undertaken to implement additional reforms. The summit welcomed the declared will of Italy to undertake reforms in order to tackle its high level of debt, as European Council President Herman Van Rompuy said. These "ambitious measures" must now be implemented, he added.

Closer coordination between the euro-zone states has also been initiated.