Shock and Awe Package Lifts Euro Markets
Published: 5/10/2010 10:16:42 AM
By: TradingEcoomics.com, Reuters
750 billion euros global emergency package to stabilize the euro unleashed a spectacular rally in European stocks and bonds on Monday but analysts said EU leaders had only bought time to tackle deep-seated fiscal problems.
The "shock and awe" rescue plan -- the biggest since G20 leaders threw money at the global economy following the collapse of Lehman Brothers in 2008 -- triggered the biggest one-day rise in European shares in 17 months after panic selling last week.
The package of standby funds and loan guarantees that could be tapped by euro zone governments shut out of credit markets, plus central bank liquidity measures and bond purchases to steady markets surprised financial analysts by its sheer scale.
The euro rose as much as 3 percent after weeks of draining confidence and financial shares were among the biggest gainers, along with the bonds of Portugal, Ireland, Greece and Spain, pejoratively nicknamed the PIGS by traders.
For the first time in six months of a deepening debt crisis that began in Greece, European leaders appeared to have got ahead of the curve with decisive action, analysts said.
But the deal left many longer-term questions about whether Europe's weakest economies can manage their debt and how the European Union can develop more coherent economic and fiscal policies to underpin the single currency.
The European Central Bank immediately began implementing its part of a deal hammered out among EU finance ministers, central bankers and the IMF, with euro zone central banks buying government bonds in the open market.
ECB President Jean-Claude Trichet denied that the bank had acted under pressure from euro zone leaders, whom he met at a summit on Friday as interbank lending showed signs of freezing in an ominous throwback to the 2008 Lehman crisis. Only the day before, Trichet had denied the bank had even discussed buying government bonds.
Risk premiums on peripheral euro zone sovereign bonds plummeted, as did the price of insuring them against default on the volatile credit default swap market, while German bund futures tumbled by a two full percentage points as investors sold safe-haven debt.
Germany and the Netherlands, sticklers for budget discipline, insisted the rescue programme was linked to the same kind of draconian austerity measures already imposed on Greece.
German Chancellor Angela Merkel, who for months resisted pressure to aid Athens over a debt crisis that eventually sent market tremors around the world, said the measures were necessary to guarantee the future of the euro.
The emergency measures are worth much more than any previous attempt by the 27-nation European Union or the 16-state single-currency group to calm markets.
They agreement was reached after the crisis over debt-laden Greece drove sovereign debt yields and insurance on this debt to record levels, which Sweden's finance minister blamed on the "wolfpack behaviours" of financial markets.
The $1 trillion package consists of 440 billion euros in guarantees from euro area states, plus 60 billion euros in a European stabilization fund that could be disbursed to help euro zone states if needed on strict austerity conditions.
EU finance ministers said the International Monetary Fund would contribute up to 250 billion euros, taking the total to 750 billion euros.
fuente: http://www.tradingeconomics.com/Articles/Article.aspx?title=Shock and Awe Package Lifts Euro Markets#ixzz0naLpoPpY
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