December 10, 2011
Europe's leaders crafted a new "fiscal compact" to repair flaws in their currency union, but the deal lacked bold strokes investors have been urging and it could be insufficient to halt the region's debt crisis.
Markets reacted with tepid optimism Friday. U.S. stocks rose. The Dow Jones Industrial Average climbed 186.56, or 1.6%, to 12184.26. European stocks were also generally higher, and the euro rose slightly. But the crucial government bond markets were mostly flat.
The positive reactions appeared to be driven by relief that leaders had reached an agreement at all, rather than enthusiasm for the deal itself. If recent history is any guide, the glow could fade fast as investors focus on the details, or on a continued lack of clarity over what role the European Central Bank will play.
"The summit was the first step toward fiscal integration, which is a problem we need to solve, but it will be a long, drawn-out process," said Mohit Kumar, head of European rates strategy at Deutsche Bank in London.
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