Global Markets Surge On Debt Progress in Italy and Greece

Signs of progress in Europe’s debt crisis and an unexpected unemployment drop claims caused stocks rise on Thursday, a day after the stock market took its worst fall since the summer.

Stocks surged Friday, erasing their losses for the week, after Italy and Greece moved closer to getting their financial crises under control. The Dow Jones industrial average jumped back above 12,000. Photo: Mark Ovaska/Flickr

A new Greece prime minister was appointed on Thursday and after that Italy borrowed $6.8 billion at unexpected lower interest rates.

Investors were also calmed by the news that the economist Mario Monti is likely to replace Premier Silvio Berlusconi, who was seen to stand in the way of economic reforms. Italy’s president pledged that Berlusconi will shortly step down.

The possible changes in Greece and Italy affected investors as well, at least for the moment: the leading stock market indexes in Britain, France and Germany all gained on Friday, and the rally extended to Wall Street, where the Dow Jones industrial average jumped more than 200 points, which made about 2 percent. In foreign exchange trading, the value of the euro rose to nearly $1.37 from $1.35 the day before.

Moreover, bond markets roiled this week, raising the cost of borrowing in Italy to levels that economists regard as unsustainable and adding to the pressures on politicians. The yield on Italy’s 10-year bond now is about 6.6 percent after Italy’s benchmark rate dropped below 7 percent after spiking above that level Wednesday.

The Dow Jones industrial average achieved 112.92 points (1%) to close at 11,893.86. It got 389 points Wednesday. Experts are afraid that debt troubles in Italy and Greece could spread to the U.S. and lead to a global financial crisis.

Soon, President Obama called Chancellor Angela Merkel of Germany and Presidents Nicolas Sarkozy of France and Giorgio Napolitano of Italy late Thursday.

At a meeting of Asia and Pacific Economic Cooperation countries, Timothy F. Geithner, the American treasury secretary, said Thursday: “The crisis in Europe remains the central challenge to global growth. It is crucial that Europe move quickly to put in place a strong plan to restore financial stability.”

He also called Asian and Pacific economies to take up the slack, slowing economic growth. “We are all directly affected by the crisis in Europe,” he said, “but the economies gathered here are in a better position than most to take steps to strengthen growth in the face of these pressures from Europe.”

In Rome, Mr. Monti took his seat in the upper house for the first time after he was appointed a senator for life. Mr. Monti has already talked with President Napolitano and the speaker of the Senate, so, he caused rumors that he is the leading candidate to succeed Mr. Berlusconi.

Despite the legislation is aimed to reduce Italy’s debt to 1.9 trillion euro, or $2.6 trillion, the European EU has already announced that Italy may need to take some further measures additionally.

The legislation includes selling 15 billion euros of state assets by 2026 and increasing the retirement age for 2 years more. The new law is also to provide a liberalization of closed professions and labor laws, a gradual reduction in government ownership of local services and tax breaks for companies that hire young workers.

European Council President Herman Van Rompuy said that the crisis that affects the euro, “the material and symbolic heart” of the European Union, is an “existential” threat that needs to be overcome.

Considering political crisis in Italy he added that “the country needs reforms, not elections.” Van Rompuy had been planning to hold talks with Mr. Berlusconi and Mr. Napolitano on Friday. [Via Sun-Times and The New York Times]

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