Financial Times
October 27, 2011
To say investors liked the European deal would be an understatement. They didn’t just welcome it with open arms; they invited it in and introduced it to their mother. Eurozone bank shares had their fifth-best day since 2004, jumping more than 10 per cent. Wider European equities also soared, before giving back some of their gains.
In this the reaction was very similar to the market’s first take on two of the previous three summits of import. Only the disappointing July meeting produced no immediate bounce.
The rally, of course, reflects the fact that investors were braced for bad news. For it to be sustained, the eurozone deal will need not only to stick, but to be the answer.
Unfortunately, it came with more questions. How will the leverage of the bail-out fund work? What will China get in return if it contributes? (Begging for help from poor emerging markets smacks of desperation.) Is the €106bn ($150bn) recapitalisation requirement for banks enough? (Analysts pencilled in higher numbers.) Will the “voluntary” bank haircuts on Greek bonds be agreed? Can Greece magic up a successful privatisation programme even larger than previously promised?
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