News - Economics / markets
Reaction to news European leaders have struck a deal to ease the region's debt crisis has been mixed...
As part of the deal, private banks holding Greek debt have accepted a 50% loss, while the eurozone bailout fund has been increased from €440bn to €1trn . Additionally, banks have been told to recapitalise to the tune of €106bn.
Here are some of the key quotes following news of the deal:
"The market has taken comfort from the announcements from the EU leaders' summit and it is indeed encouraging some form of agreement has been reached after all the squabbling we have witnessed. The headlines are positive but, as always, the devil is in the detail and that detail is lacking - for example, the mechanism for leveraging up the EFSF rescue vehicle to the promised level of €1.0 trillion.
"The package may calm the markets and buy some time but what is disappointing from my point of view is the lack of progress on fiscal integration, which I see as vital to ensure the long-term stability and success of the single currency zone."
"It is good to see progress, but we are still a fair way off a sound resolution. The involvement of the IMF and potentially the Chinese will reassure investors. However, details on how the EFSF will operate, and where the £106bn to recapitalise the banks will come from is still unknown.
"Real money will be needed to resolve the debt problem; the question now is where this is going to come from. Until then, the sentiment will remain fragile."
"The package seems in line with what markets were expecting or even hoping for. It will allow attention to move onto other issue. For example, the US, where activity numbers seem better than many commentators had feared, and China, where the next policy step may be a modest easing.
"So far as markets are concerned, I would expect the higher-quality bond markets in US, Germany and the UK to react negatively. Equities, which have proven more resilient than some feared, are likely to continue to react positively, with more cyclically exposed sectors to the fore."
"The announcement of a €1trn plus package to solve the financial crisis in Europe certainly seems to have gone a long way, one thing strikes as curious. The stabilisation of sovereign debt markets relies on the employment of leverage as a solution. We query the wisdom of this.
"Europeans seem intent on limiting the capital commitments they make for an issue of solvency and not liquidity.
"Solvency is in fact the core of the problem, and whilst we expect markets to be jubilant as we enter 2012, questions remain as to the longer term solvency of some peripheral eurozone countries.
"The dislocation in money markets that we have witnessed over the past three months may already have done grave damage to the growth prospects for the region next year.
"Austerity is still required as a condition of the support received at an EU level, and the danger must be when several countries tighten fiscal policy simultaneously, it may have an overbearing impact on the growth trajectory of the eurozone economy. Should the threat of recession become more real, markets may react quite differently to their current optimistic state, as investors question once again the sustainability of the single currency and its constituent members. This begs the question - will the fire power of the bail out package prove enough?
"So whilst we welcome the steps that have been taken, we still feel that some opportunities were missed in terms of the 'shock and awe' nature of the package, and we continue to ask ourselves whether the eurozone has once again just bought itself more time."
"These are very positive steps in the right direction which re-enforces our view European politicians are willing to take unprecedented action to keep the European Monetary Union together.
"Overall, there are a lot of details still missing from the plan, though we are encouraged European politicians are moving in the right direction. The deal should help reduce the volatility in financial markets, though the damage may have already been done to the real economy.
"We expect the eurozone economy to slow significantly by the end of the year, though the deal done may have helped avoid a second global credit crunch and a very deep recession."
"We are in a much better place this morning than we were yesterday afternoon. But we have now got to have the details filled in.
"The thing is to maintain the momentum - back in July there was an agreement but it took months to put into place. The eurozone leaders have grasped the seriousness of the situation."
“The world’s attention was on these talks today. We Europeans showed tonight that we reached the right conclusions.”
"Eurozone leaders have delivered more than investors feared they would only last night, and less than they would ideally like to see. Although markets reacted positively to the news, ideally investors would like to see bailout resources of at least €2 trillion and a Greek write-off of 60%.
"The other vitally important point is that what we have - on the expansion or "leveraging" of the bailout fund and the reduction of Greek debt - is a statement of what eurozone leaders wish to achieve. All the technical implementation, which will be messy and complicated, is yet to come."
"Recapitalising banks is a step in the right direction. The decision to give banks until June 2012 is sensible. It allows banks to sell assets rather than just go directly to public markets, which would prove difficult. The sanctions on bank dividends and bonuses should ensure this gets done.
"The €106bn in fresh capital will ensure a new minimum of 9% Tier 1 capital ratio for euro area banks. I believe stronger banks will strive to be well above this level. The impact on growth in the short-term will be a negative as the deleveraging process continues, but a better capitalised banking system has got to be good in the long-term.
"The 50% Greek write-down is an important step forward, although I would like to see more details. The Greek write-down sets a watermark for other European countries. How does Italy look on this basis? The eye of the storm will now move to Rome and its fragile government. I do not think yields on Italian debt will fall on the back of this agreement for long.
"There have also been proposals to leverage the EFSF ‘four or five' times. Unless the fund has a sound equity base I think it is a heroic piece of financial alchemy. Its effectively an insurance company selling protection against its own default. You can understand why the insurance company would want to sell it but it is yet to be seen whether the Chinese would want to underwrite it.
"My overall view is the deal is not the game changer. Italy's 120% debt-to-GDP does not look any more sustainable today than yesterday.
"Europe is destined for a multi-year workout during where economic growth will be very restrained and equities will remain cheap.
"The path of equities will therefore require better news elsewhere. Earnings growth in the US continues to surprise on the upside and we may be approaching a policy shift in China. The catalyst for higher equity values lies outside Europe rather than within."
"EU leaders needed to pull a rabbit out of the hat. They failed to do so. This is no 'comprehensive deal'.
“The numbers are too small, the timelines too long and details too thin on the ground. An invitation to agree to a haircut is not the same as a haircut.”
"We can claim a new day has come for Greece, and not only for Greece but also for Europe."
"These are exceptional measures for exceptional times. Europe must never again find itself in this situation. That is why we must further improve our economic governance, namely in the euro area: the euro summit paves the way to a further strengthening of co-ordination and surveillance [of eurozone economies]."
"The question is whether it will be enough in the long term, or whether it has merely put off the day of reckoning, for a little while longer. While we now have some numbers to go on it will be all rather pointless of leaders do not find a way to stimulate growth and we still have the question of Italy's finances."
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