The European leaders have found a temporary solution to the debt crisis.
Greece's private bondholders have agreed to a 50% debt write-down. It is being called "voluntary", but they had no other choice.
Even after this write-down, Greece's debt remains at very high levels and is expected to touch 120% of its GDP by 2020. (Earlier estimates were 170%-180% of the GDP).
European Financial Stability Facility (EFSF) will now be allowed to use leverage and it has the mandate to use up to $1.4 trillion.
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Around 250 billion euros remaining in the fund will be leveraged 4-5 times, producing a headline figure of around 1.0 trillion euros, which will be deployed in a variety of ways.
The EFSF will be leveraged in two ways, either by offering insurance, or first-loss guarantees, to purchasers of euro zone debt in the primary market, or via a special purpose investment vehicle that will be set up in the coming weeks and which is aimed at attracting investment from China and Brazil.
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Euro deal leaves much to do on rescue fund, Greek debt - Business - World business - msnbc.com
However, I feel that after the step-motherly treatment that private investors have been given in case of Greece's bonds, they will be skeptical about investing further in bonds of other PIIGS nations.
If private investors shun bonds of PIIGS, governments in the Eurozone will have to continuously finance the deficits of PIIGS.
Economies around the world are becoming more and more dependent on money pumping by their respective governments. That's a factor to worry about in the long-term.
Anyway, for today, let's just enjoy the rally.
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