Markets Boost after EU Leaders Reached Agreement on Greek Debt Deal

Markets rose after EU leaders reached a deal to help Greece to regulate its debt crisis.

Stocks surged 3 percent on Thursday as an agreement by European leaders to help contain the region's two-year debt crisis lifted a cloud hovering over markets. Photo: Ramillav/Flickr

After a marathon summit of over ten hours talks ended early Tuesday morning EU President, Herman Van Rompuy, announced that the deal will decrease Greece’s debt to 120 percent of its GDP in 2020. Under current conditions, it would have grown to 180 percent.

“We can claim that a new day has come for Greece and also for Europe,” said Greek Prime Minister George Papandreou. “A burden from the past has gone — we can start a new era of development.”

Angela Merkel speaks on the results of the summit:

I believe that yesterday we assembled a good joint package to take the next steps […] We still have many steps left to take, which you see now in the structural reforms that have been announced by countries such as Italy and Spain and Greece. So you can’t use a single summit alone to reach the goal, rather we have to work together further on structural matters.

The strategy accepted on Tuesday contains three major points to be done:

  • Reduction in Greece’s debts to a huge extent.
  • Shoring up the banks, so they can sustain the deeper losses on Greek bonds.
  • European banks would have to raise more capital and increase the euro zone bailout fund to $1.4 trillion. They hope this move will prevent similar situations in Italy and Spain.

Russell Price, the senior economist in Ameriprise Financial, shared his opinion, “I think it is a very good step but I don’t think it is the complete package. That is going to take years to make sure some of these heavily indebted countries are going to be able to bring down their debt.”

But the dollar fell. The euro rose to $1.42 from $1.3906, the British pound rose to $1.61 from $1.5975. The dollar also fell to 75.801 yen from 76.17 yen.

U.S. stock markets surged higher Thursday on the news. Prices for oil rose above $92.71a barrel and at the same time the euro gained strongly — a signal that investors were relieved at the outcome of the contentious negotiations.

In return for EU help, Greece will come under closer supervision than the past year. To compare: last year monitoring campaigns by EU inspectors were held every three months to assess fiscal and monetary policy decisions. This year the situation is to be changed: Germany insisted on advisers’ basement in Greece.

Analysts predict the EU plan for Greece rescue will constitute a menace to the U.S. economy. Experts are also talking about unfavorable results in the global financial system, although some felt it may be prudent to book profits from the recent rally.

“We’ve almost recovered the whole summer slide …. OK, you’ve recovered your loss, this may be a great time to take some money off the table,” Scott Armiger, portfolio manager at Christiana Trust in Delaware.

“It won’t happen. Most people will pile on now and probably get disappointed.” [Via USA Today,Reuters]

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