Obama calls for 'firewall' to contain eurozone debt crisis

US President Barack Obama wants Europe to create a ‘firewall’ as part of its plans to contain the eurozone debt crisis, he said in a Financial Times newspaper article published today.

“This week, our European allies made important progress on a strategy to restore confidence in European financial markets, laying a critical foundation on which to build,” Obama wrote in the business daily. “Given the scope of the challenge and the threat to the global economy, it is important for all of us that this strategy be implemented successfully - including building a credible firewall that prevents the crisis from spreading, strengthening European banks, charting a sustainable path for Greece and tackling the structural issues at the heart of the current crisis.”

At Wednesday’s Brussels summit, EU leaders cut a crucial deal in a concerted attempt to resolve the eurozone debt crisis, prevent contagion in the likes of Italy and Spain, and avoid another painful global recession.

The leaders agreed a three-pronged strategy: avoiding a Greek default, backstopping other countries struggling with debt and improving the war chests of at-risk banks. It includes quadrupling the firepower of the European Financial Stability Facility (EFSF), the eurozone’s emergency rescue fund, to one trillion euros (USD 1.4 trillion) and a new 100 billion euro bailout for Greece.

Banks will take a 50 per cent loss on their holdings of Greek debt to lessen Athens’ burden, and seek to strengthen their capital by a collective 100 billion euros.

AFP