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A man passes in front of a huge replica of a one drachma coin in Athens October 26, 2011 (JOHN KOLESIDIS)
A man passes in front of a huge replica of a one drachma coin in Athens October 26, 2011 (JOHN KOLESIDIS)

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What Greece crisis wrought: 'Only God can save us' Add to ...

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But on the streets ... The markets may be cheering, and Greece's Prime Minister George Papandreou may be heralding the euro crisis accord today, but they're not celebrating in the streets.

“What rescue?" George Kapsokalyvas, and 85-year-old pensioner, told the Reuters news agency. "Europe has betrayed us. Can’t they see we’ve nothing left to give? Only God can save us.”

The Wall Street Journal quoted a 49-year-old bookstore owner who says his sales have slumped by 70 per cent and he can't pay his rent. And a piano teacher who now teaches just three students because the parents of others can't pay.

The Greek people have been protesting, striking and, at times, rioting against Mr. Papandreou's austerity measures, which include wage cuts and job losses in an economy already struggling with an unemployment rate of 16.5 per cent and rising homelessness.

The euro deal Will the euro zone deal be enough?

Many questions remain unanswered today, but for now the embattled leaders of the monetary union appear to have taken several steps in the right direction to easing the debt crisis that has plagued the region for about two years. Certainly the markets think so.

Leaders of the 17-member euro zone forged a broad agreement after a marathon session that ended in the early hours, as The Globe and Mail's Eric Reguly reports. The three main pieces of the package would beef up the union's bailout fund, force the region's banks to shore up their capital to the tune of €106-billion, and see the private holders of Greek debt voluntarily take a 50-per-cent hit, with the euro zone kicking in €30-billion to help out.

"The question is whether it will be enough in the long term, or whether it has merely put off the day of reckoning, for a little while longer," said CMC Markets analyst Michael Hewson. "While we now have some numbers to go on it will be all rather pointless of leaders don’t find a way to stimulate growth and we still have the question of Italy’s finances."

It is, of course, impossible to tell where all of this leads. As senior currency strategist Elsa Lignos of RBC in London put it, Europe's debt crisis is by no means solved.

First, the plan aims to bring Greece's debt-to-GDP ratio to 120 per cent by 2020, down from 160 per cent. "In practice that will be hugely dependent on the path of growth," Ms. Lignos said of the Greek economy, which is deep in recession.

As for the debtholders, they're looking at a writedown of €100-billion, and virtually all have to agree. "If some bondholders hold out we may need to see more than just the €30-billion sweetener of public euro zone money to get everyone on board," Ms. Lignos said.

As for whether bringing down the debt level to 120 per cent is enough, "Greek revenue growth prospects to finance a debt -to-GDP load in about 10 years that is comparable to Italy's ratio today are scant," warned Derek Holt and Karen Cordes Woods of Scotia Capital.

Key, too, is what the ratings agencies say.

"If S&P sticks to its guidance from earlier this summer, then it will stamp Greek debt in default by virtue of this deal having altered the original indenture terms for the worse," said Mr. Holt and Ms. Woods.

"That would not only shut Greece out of capital markets for years, it could also motivate rating agencies to take a more aggressive stance toward other heavily indebted nations given the European precedent that has now been set toward imposing losses on the holders of debts owed by profligate sovereigns," they said in a report today.

"Lastly, even a repeat remedial economics student would get that leverage is not without its risks. The EU is compounding leverage upon leverage here, just as the U.S. did with its housing market in the waning days of its boom. That worked wonderfully."

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