Eurozone debt deal reaction - live coverage
Markets celebrate Greek debt deal, agreed in the early hours
Euro summit statement
Summary of deal
8.41am: Apparently, Sarkozy rushed out of the leaders' meeting in the wee hours of this morning to be the first to give a press conference. Announcing the enlargement of the bailout fund to $1.4tn, he stressed: "$1.4tn - yes I said dollars. I'm not giving this information for European markets but for global markets."
8.38am: Our man in Rome, John Hooper, has looked at the reaction to the euro summit deal there.
Italians woke up wondering whether their country had just become a Brussels protectorate. This morning's statement invites the Commission to provide a detailed assessment of the measures pledged by Silvio Berlusconi's government in a letter delivered to the summit "and to monitor their implementation". Radio 24, the station owned by Italy's bosses' union, said on its morning news it amounted to putting the country into special administration.
The other focus was on the reaction of the unions to a promise in the letter to make it easier for employers to fire workers in times of crisis, either for their firm or the economy. Raffaele Bonanni, head of the moderate, Catholic-oriented CISL trade unions federation, called it "an incitement to revolt".
The summit also left behind a diplomatic mystery.
Silvio Berlusconi somehow found time to do a quick interview with a late-night TV chat show in which he claimed Angela Merkel had apologised to him for the now-famous "smirks" between her and Nicholas Sarkozy last weekend when asked about their! faith i n Italy's ability to deliver on its undertakings. But Steffen Seibert, Angela Merkel's spokesman, flatly contradicted him on on Twitter saying there had been no apology "because there was nothing to apologise for".
@RegSprecher Steffen Seibert
@nomfup No apology from the Chancellor because there was nothing to apologise for. Berlusconi + Merkel have good, open talks among friends
At all events, the rift with France remains and is motivated more by Lorenzo Bini Smaghi's refusal to leave his seat on the ECB board where Italy will soon have two seats while France remains unrepresented. Italian reporters noted Sarkozy avoided any contact with Berlusconi last night, and the prime minister himself admitted he had been unable to speak to the French president. In his TV interview he appealed to Bini Smaghi to step down.
8.33am: More reaction to the deal. Alan James, strategist at Barclays Capital, said:
The results of the summit appear to provide a framework that can offer a degree of stabilisation over the medium term if efficiently implemented, but without significant positive surprises relative to market expectations. The details and timetable for implementation of most measures remains vague.
While the official statement suggests the leveraging mechanisms could potentially multiply the firepower of the EFSF by four to five times, the efficacy of the structure is far from certain. On Greece, it remains unclear whether the 30bn from member states is new money, while even if this process is completed without further detail, there is still potential for it to be designated as a default trigger event, albeit today's agreement appear to have reduced this probability somewhat.
On bank recapitalisation, most of the 76bn estimated need outside of Greece is likely to come from the private sector, with Spain already indicating it does not expect state aid to be required. The initial market reaction of modest relief a! ppears a ppropriate, in our view, but an extended normalisation rally is far from certain without more details on implementation.
8.27am: Turning to the recapitalisation of European banks, here are the main points. The banks will be required to hold up to 9% of core tier 1 capital by June next year. They are expected to first seek private sources of capital, then national government support. If this support is not sufficient, recapitalisation should be available via an EFSF loan.
Simon Lewis, chief executive of the Association for Financial Markets in Europe said:
The recapitalising of Europe's banks will not in itself solve the sovereign debt crisis. However, this plan is set within a timeframe that should enable them to determine how best to strengthen their capital positions in ways that treat all stakeholders fairly and allow the banks to fulfil their role in supporting Europe's economic recovery.
8.18am: The hardest bit of the deal was Greece, whose debts are on track to balloon to 180% of GDP by 2020. To reduce this to 120% of GDP, private creditors will be asked to accept 50% losses on the bonds they hold. The Institute of International Finance, the banks' lead negotiator, said it was committed to working out an agreement based on that "haircut". But the challenge now will be to ensure that all private bondholders fall in line.
The 50% haircut equals a contribution of 100bn to a second rescue for Greece. The details are yet to be worked out, and the move has been sweetened by the inclusion of a 30bn contribution from eurozone member states to guarantee the remaining value of the new bonds.
8.09am: Sarkozy will phone Chinese president Hu Jintao later this morning. China's official Xinhua news agency described the outcome of the summit as "positive but filled with difficulties".
It seems that all sides at this summit made big efforts and this will bring confidence to markets and! also ad d impetus to the international community joining hands to respond to the current economic situation.
8.05am: Markets are celebrating the euro summit deal: the FTSE is up 123 points at 5677, a 2.25% gain while the Dax in Frankfurt has leapt 3.3% and the CAC in Paris has climbed 2.5%. Spain's Ibex is up 3.1% and Italy's FTSE MIB has added 2.7%.
Markets in Asia also rose overnight, with Japan's Nikkei closing 2% higher at 8926.54 while Hong Kong's Hang Seng climbed 2.2% to 19,492.
After months of dawdling, politicians were under huge pressure to come up with a decisive plan to prevent the debt crisis from pushing Europe and much of the developed world back into recession, and to keep the eurozone together.
7.45am: Good morning. Welcome back to the live blog. European leaders finally clinched a deal in the early hours of the morning after 10 hours of negotiations. Our man in Brussels David Gow was there for the duration and filed this report just before 5am.
Greece's debt will be halved and the eurozone bailout fund strengthened, but as to whether this deal is the big bazooka the markets were looking for, we'll have to wait and see. While experts are poring over the full details, stock markets are expected to open sharply higher, with the FTSE 100 index in London set to rise more than 100 points.
A relieved French president Nicolas Sarkozy told reporters after the meeting ended Thursday morning:
We have reached an agreement, which I believe lets us give a credible and ambitious and overall response to the Greek crisis. Because of the complexity of the issues at stake, it took us a full night. But the results will be a source of huge relief worldwide.
Here's a summary of what was agreed:
The firepower of the EFSF bailout fund will be increased to $1.4tn (1tn)
Banks agree 50% writedown in the fac! e value of Greek government bonds
Athens will be handed a new 100bn bailout early in the new year
Bank recapitalisation - banks required to hold up to 9% of tier 1 capital by June next year, with a figure of 100bn mooted
Michael Hewson, market analyst at CMC Markets, said:
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 don't find a way to stimulate growth and we still have the question of Italy's finances.
Given that the extent of private sector involvement for Greek haircuts has finally been agreed at 50% it is difficult to estimate how EU leaders arrived at the figure of 100bn, which seems rather low, given the 50% amount agreed.
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