BRUSSELS — The excruciating work of inking a deal to contain their two-year debt crisis over, European leaders turned Thursday to a potentially more difficult task: implementing the agreement that asks banks to take on bigger losses on Greece's debts and hopes to boost the region's arsenal against market turmoil.
World stock markets surged Thursday on the news that the leaders had clinched a deal that everyone hopes will keep the currency union from unraveling and prevent the crisis from pushing Europe and much of the developed world back into recession. But analysts were more cautious, noting that the deal remains vague and its success hangs on the details.
In the pre-dawn hours of Thursday, after the deal was unveiled, leaders claimed victory. But by evening, they were cautioning that their work has only begun.
"I think that yesterday we found a good overall package for the next stage, but I think that we still have many more stages to go," German Chancellor Angela Merkel told reporters in Berlin.
Cracks were already showing not even 24 hours after the deal. In an interview on French television channels TF1 and France-2, President Nicolas Sarkozy defended the deal as necessary to save the eurozone, but took a dig at Greece.
"It was an error" to let Greece join the monetary union in 2001, he said, during the interview aimed at explaining the agreement to the French public.
"Its economy was not ready to take on an integration into the eurozone," he said.
Earlier Thursday, Sarkozy called his Chinese counterpart Hu Jintao and pledged to cooperate to revive global growth.
There was no word on whether Beijing might contribute to Europe's bailout fund. Sarkozy said in his interview Thursday night that he would welcome any investment, but that Europe didn't need China to save it.
"The proof is that we saved it without the Chinese," he said.
The fund's chief executive is due to visit Beijing on Friday to talk to potential investors. Beijing has expressed sympathy for the 27-nation European Union, its biggest trading partner, but has yet to commit any cash.
The strategy unveiled after 10 hours of negotiations focused on three key points. These included a significant reduction in Greece's debts, a shoring up of the continent's banks, partially so they could sustain deeper losses on Greek bonds, and a reinforcement of a European bailout fund so it can serve as a (euro) 1 trillion ($1.39 trillion) firewall to prevent larger economies like Italy and Spain from being dragged into the crisis.
After several missed opportunities, hashing out a plan was a success for the 17-nation eurozone, but the strategy's effectiveness will depend on the details, which will have to be finalized in the coming weeks.
"The finer details still appear somewhat sketchy ... but the prospect of a contagion and a disorderly default appear to have been put to one side for the time being," said Michael Hewson, market analyst at CMC Markets. "The only concern is that this post-deal euphoria could well leave investors with a nasty hangover when they start to look at the fine print."
President Barack Obama, who had been pressuring Europe to get its act together in recent weeks, welcomed the plan but pointedly noted that the U.S. was looking forward to its "full development and rapid implementation."
The most difficult piece of the puzzle proved to be Greece, whose debts the leaders vowed to bring down to 120 percent of its GDP by 2020. Under current conditions, they would have ballooned to 180 percent.
To achieve that massive reduction, private creditors like banks will be asked to accept 50 percent losses on the bonds they hold.
The Institute of International Finance, which has been negotiating on behalf of the banks, said it was committed to working out an agreement based on that "haircut," but the challenge now will be to ensure that all private bondholders fall in line.
It said the 50 percent cut equals a contribution of (euro) 100 billion ($139 billion) to a second rescue for Greece, although the eurozone promised to spend some (euro) 30 billion ($42 billion) on guaranteeing the remaining value of the new bonds.
The deal is only the start of negotiations with the banks — since they cannot be forced to take the losses without triggering the payment of bond insurance and risking greater market turmoil. With many banks struggling to get access to the loans they need to fund their day-to-day operations and the new rules that require them to raise billions of euros in capital, it could be very difficult to persuade them to accept the Greek writedown.
The full program is expected to be finalized by early December and investors are supposed to swap their bonds in January, at which point Greece is likely to become the first euro country ever to be rated at default on its debt.
"We can claim that a new day has come for Greece, and not only for Greece but also for Europe," said Greek Prime Minister George Papandreou, whose country's troubles touched off the crisis two years ago. "A burden from the past has gone, so that we can start a new era of development."
Not all Greeks were convinced. Prominent left-wing deputy Dimitris Papadimoulis said the agreement would doom Greeks to a deeper recession.
"We are now locked in a system of continuous austerity, haphazard privatization and continuous supervision by our creditors," he said.
Since May 2010, Greece has been surviving on rescue loans worth (euro) 110 billion ($150 billion) from the 17 countries that use the euro and the International Monetary Fund since it can't afford to borrow money directly from markets.
In July, those creditors agreed to extend another (euro) 109 billion — but that plan was widely panned as insufficient.
Now, in addition to (euro) 30 billion in bond guarantees, the eurozone leaders and IMF said they will give Greece (euro) 100 billion ($139 billion) in new loans.
With the banks being asked to shoulder more of the burden, though, there were concerns they needed more money in their rainy-day funds to cushion their losses. So European leaders have asked them to raise (euro) 106 billion ($148 billion) by June.
The last piece in the complicated plan was to increase the firepower of the continent's bailout fund to ensure that other countries with troubled economies — like Italy and Spain — don't get dragged into the crisis. The third- and fourth-largest economies of the eurozone are too large to be bailed out like the smaller euro nations Greece, Portugal and Ireland have already been.
To that end, the (euro) 440 billion ($610 billion) European Financial Stability Facility will be used to insure part of the potential losses on the debt of wobbly eurozone countries like Italy and Spain, rendering its firepower equivalent to around (euro) 1 trillion ($1.39 trillion).
That should make those countries' bonds more attractive investments and thus lower borrowing costs for their governments.
In addition to acting as a direct insurer of bond issues, the EFSF insurance scheme is also supposed to entice big institutional investors to contribute to a special fund that could be used to buy government bonds but also to help states recapitalize weak banks.
Such outside help may be necessary for Italy and Spain, whose banks were facing some of the biggest capital shortfalls.
Sarah DiLorenzo reported from Paris. Greg Keller and Sylvie Corbet in Paris, Juergen Baetz, David Rising and Geir Moulson in Berlin, Raf Casert, Don Melvin and Robert Wielaard in Brussels and Julie Pace in Washington contributed.