The European Central Bank in Frankfurt, Germany. (Photo via Creative Commons)

The basis of the plan circles around banks taking on Greece's debts collectively in an aim to distribute the wealth, rather than keep it concentrated in one area. European leaders said the plan was the answer to their debt crisis.

From The Associated Press:

"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.

Part of that work began Thursday when French President Nicolas 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.

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 euro1 trillion ($1.39 trillion) firewall to prevent larger economies like Italy and Spain from being dragged into the crisis.

American markets responded positively to the plan, jumping several percentage points across all the major indices. However, some questioned how effective the plan would be.

From the New York Times:

“Everything depends on Italy,” said Lüder Gerken, director of the Center for European Policy in Freiburg, Germany. “If Italy goes under, a recapitalization won’t do anything.”

“Italy has to make fundamental reforms,” he added. If not, “then the euro is history.”

Like most of what emerged from Brussels, the plan to strengthen banks was seen as good, but not quite good enough.

The measures start to address the fragility of the European banking system, one of the core elements of the debt crisis. Continental banks generally have lower reserves than their U.S. counterparts, making them less able to absorb losses from their holdings of government bonds or other troubled assets.

Now, analysts say, it remains to be seen if European markets begin to sway in the coming months, hoping that stability will come from the new debt deal.