Finally a deal - but underlying growth challenges still to be solved

The Eurozone leaders managed to present a comprehensive deal early on Thursday morning after 11 hours of deliberations. This is clearly positive as the leaders themselves had warned about the risks with yet again postponing a comprehensive plan to solve the problems. They did, however, not sort out all the details but found broad agreements on the critical issues.

There are lots of details but the main elements include a voluntary 50% haircut on Greek debt, a mandatory EUR 106bn bank recapitalization and a leverage of the EFSF (the bailout fund) to around EUR 1000bn.

Markets reacted positively this morning and there are mostly upbeat comments from media and analysts although some point out that the agreement will not be enough and that the politicians have promised many things before. But this should be a game changer as the Eurozone showed political will to address the problems and tackled all the major issues. Put differently, the deal may not be perfect and is late but this is as good as it gets.

The whole world has been waiting for this deal as the Eurozone debt problems have been a source of market volatility and financial uncertainty for months. The deal does not address the underlying growth challenges but is believed to provide a necessary insurance to financial uncertainty and thus reduce the volatility, which will be positive for financial markets in general and those emerging markets that do not have the same kind of underlying debt and growth challenges in particular.

It is not a silver bullet – and all the details are not yet clear – but it is a bullet and it was long overdue.