Markets up after surprise euro deal29/06/2012 - 10:54:54
Financial markets rose today after European Union leaders threw a lifeline to the eurozone’s tottering banks.
Taoiseach Enda Kenny described the deal, struck in the early hours of this morning by the leaders of 17-nation single currency bloc, as a seismic shift in European policy that would allow Ireland to re-engineer its overall debt level.
The FTSE 100 Index rose 78 points on the news – a 1.4% increase – following the agreement in Brussels that struggling banks could have access to the EU’s bailout funds without adding to government debt.
Mr Kenny said the new deal means Ireland’s overall debt burden, including the bank debt, can be re-engineered in a way to give Ireland equal treatment to Spain and any other countries which avail of the new system.
In Dublin the ISEQ index of Irish shares was up 53.57 points to 3,126.37.
Tánaiste Eamon Gilmore described the deal as a massive breakthrough for Ireland which breaks the link between the crippling bank debt and the State.
“This really changes the game for us as far as bank debt is concerned,” he said.
A statement issued by the eurogroup this morning affirmed that it was " imperative to break the vicious circle between banks and sovereigns" and made specific reference to Ireland.
" We ask the (European) Council to consider these proposals as a matter of urgency by the end of 2012," the statement read.
"When an effective single supervisory mechanism is established, involving the ECB, for banks in the euro area the ESM could, following a regular decision, have the possibility to recapitalize banks directly.
"The Eurogroup will examine the situation of the Irish financial sector with the view of further improving the sustainability of the well-performing adjustment programme.
"Similar cases will be treated equally."
That statement was welcomed by Fianna Fáil finance spokesperson Michael McGrath, who however said clarity was needed on its application to Ireland.
“How much of the €64bn injected into Irish banks can be revisited and what the consequences will be for next December’s budget?" Deputy McGrath said.
"Irish people will only feel the benefit of last night’s decisions when it results in the Government having to impose a less difficult budget than had been expected.
"The Government now needs to spell out exactly what deal we are seeking on foot of this morning’s decision and what the consequences are for Ireland."
The surprise deal came after Italian prime minister Mario Monti and Spain’s Mariano Rajoy faced down Germany’s chancellor Angela Merkel in a tense summit showdown.
Mrs Merkel had come to the summit determined to maintain her hardline position, insisting that there were no short-term fixes on the table.
But she was forced to relent after Mr Monti and Mr Rajoy – with the backing of French president Francois Hollande – made clear they would block any further progress at the summit if they did not receive assistance to curb their soaring borrowing rates.
In response, the yield on 10-year bonds in Italy and Spain fell to 4.5% and 5.8% respectively, away from the unsustainable 7% mark which pushed Greece, Portugal and Ireland into taking a bailout.
Arriving for today’s final session, British Prime Minister David Camerons said: “For a long time we have been saying that more action needs to be taken for short-term financial stability – more to recapitalise banks, to use firewalls to drive down bond spreads and interest rates to create greater stability.
“I think they took some important steps forward last night and I very much applaud that. There is still important work to do and that is what we will be doing today.”
The “breakthrough” was announced by European Council president Herman van Rompuy.
“We are opening the possibilities for countries that are well-behaving to make use of financial stability instruments ... in order to reassure markets and get again some stability around some of the sovereign bonds of our member states,” Mr van Rompuy said.
He said they had also agreed the establishment of a joint banking supervisory body for the eurozone.
The summit had expected to focus on a 10-year road map for reform of the eurozone, setting out proposals for a banking union, fiscal union – and leading ultimately to political union.
A report fleshing out the details of the plan will now be delivered to the next EU summit in October.
Mr van Rompuy said it would be “a specific and time-bound roadmap for the achievement of a genuine economic and monetary union”.
“The aim is to make the euro an irreversible project,” he said.
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