Euro Zone Strikes Deal on 2nd Greek Package, EFSF

Euro zone leaders struck a deal with private banks and insurers on Thursday for them to accept a 50 percent loss on holdings of Greek government bonds as part of a plan to lower Greece's debt burden and try to contain the two-year-old euro zone crisis.

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In an agreement reached after more than eight hours of sometimes harsh negotiations, the private sector said it would voluntarily accept a nominal 50 percent cut in its investments to reduce Greece's debt burden by 100 billion euros, cutting its debts to 120 percent of GDP by 2020, from 160 percent now.

At the same time, the euro zone will offer "credit enhancements" or sweeteners to the private sector totaling 30 billion euros. The aim is to complete negotiations on the package by the end of the year, so that Greece has a full, second financial aid program in place before 2012.

The value of that package, EU sources said, would be 130 billion euros — up from 109 billion euros when a deal was last struck in July, an agreement that subsequently unraveled.

"The summit allowed us to adopt the components of a global response, of an ambitious response, of a credible response to the crisis that is sweeping across the euro zone," French President Nicolas Sarkozy told reporters afterwards. Read more

Asian Stocks Decline as Spain Downgrade Deepens Global Recovery Doubts

Asian stocks fell, ending a six-day winning streak for a regional benchmark index, after Standard & Poor’s cut Spain’s credit rating, fueling concern Europe’s debt crisis will continue to weigh on Asian economies and corporate earnings.

The MSCI Asia Pacific Index dropped 0.3 percent to 117.38 as of 9:09 a.m. in Tokyo, snapping a 9.7 percent advance over the previous six days. The gauge climbed four days this week after German Chancellor Angela Merkel and French President Nicolas Sarkozy pledged at the weekend to deliver a plan to recapitalize banks and address Greece’s debt crisis. Read more

Spain Credit Rating Downgraded One Notch by S&P

Ratings agency Standard and Poor's downgraded the long-term credit rating of Spain by one notch to "AA-" from "AA" with a negative outlook, due to weak growth, tightening fiscal conditions and high private sector debt.

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"Despite signs of resilience in economic performance during 2011, we see heightened risks to Spain's growth prospects due to high unemployment, tighter financial conditions, the still high level of private sector debt, and the likely economic slowdown in Spain's main trading partners," S&P said in a statement.

It added it expected continuing deterioration in financial system asset quality while the incomplete state of labor-market reform will contribute to structurally high unemployment that will be drag on economic recovery.

US Facing 'Dangerous' Threat From Euro Debt: Greenspan

The U.S. economy and stock market face severe consequences from the European financial crisis, which will not resolve itself without major debt restructuring, former Federal Reserve Chairman Alan Greenspan said.

CNBC

"I think it's very dangerous," Greenspan said in a CNBC interview. "Everyone's got their fingers crossed."

As global policy makers struggle to find a solution to the daunting problems Greece and other nations face with sovereign debt , the primary debate in the U.S. is how much contagion there will be for the domestic economy.

For Greenspan, there is no question: The threat from Europe is real and it is substantial.

While U.S. banks don't have a comparatively high level of exposure to the sovereign debt itself, he said the domestic financial system is nevertheless reliant on the stability of its European counterparts.

The stock market, meanwhile, has been heavily influenced on the daily news reports coming out of Europe and the plethora of proposed solutions that emerge. Read more

Moody's slashes Italy credit rating

(Reuters) - Moody's lowered its rating on Italy'sbonds by three notches on Tuesday, saying it saw a "material increase" in funding risks for euro zone countries with high levels of debt and warning that further downgrades were possible.

The agency downgraded Italy to A2 from Aa2, a lower rating than it holds on Estonia and on a par with Malta and kept a negative outlook on the rating.

The euro pared gains against the dollar and Japanese yen immediately following the announcement which comes after Moody's rival Standard and Poor's cut its rating on Italy by one notch to A/A-1 on September 19.

The cuts underline growing investor concern about the euro zone's third largest economy, which is now firmly at the center of the debt crisis and dependent on help from the European Central Bank to keep its borrowing costs under control. Read more

Greek Default 'Inevitable': Former Government Minister

As strikes threatened to bring struggling Greece to a standstill Wednesday, pessimism about the future of the euro zone--in its current form, at least--continued to plague the Continent.

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Speculation that the Mediterranean country would have to default on its debt repayments has grown in recent days, after the government there announced that it will not meet deficit reduction targets for 2011.

If Greece were to default, it would hit the balance sheets of many European banks, and potentially even lead to the end of the euro[EUR=X 1.3304 -0.0043 (-0.32%) ] itself.

Petros Doukas, a former Greek deputy finance minister, told CNBC Wednesday that default is "inevitable" and called for an "organized" and "orderly" haircut on the debt to try and stop a run on the banks in the event of a default.

"The capacity of the Greek people to pay taxes is really at the limit," he said. "People like me are paying taxes out of their savings and by selling off assets, not by generating new income."

Greece needs to reduce its deficits and start selling off state-backed assets in order to meet the terms of a second bailout by the International Monetary Fund (IMF) and the European Central Bank, agreed upon in July. However, the Greek protestors are chafing at government-imposed austerity measures. Read more