The markets and financial analysts welcomed the decisions taken by the European Union to tackle its debt crisis on Thursday, with stock and oil prices jumping and the ruble strengthening.
“In a few months we will see the phase when the debt crisis is under control, which means the ‘patient’ will be on rehabilitation,” said Metropol investment house senior analyst Mark Rubinstein.
European leaders agreed the enlargement of the European Financial Stability Fund to up to 1 trillion euros, from the previous limit of 440 billion euros. They also reached a deal with private creditors to write off 50 percent of Greece’s debt in exchange for over a 100 billion euro recapitalization. Banks will be required to seek additional funding to raise capitalization to 9 percent by June 2012.
In a move which considerably boosted market sentiment, Belgium’s Finance Minister Didier Reynders said China, the world’s second largest economy, was ready to contribute to the fund.
“Investors considered this a satisfactory result of the summit,” said Finam analyst Zarina Saidova.
European stocks surged to a 12-week high and the euro reached its highest level against the dollar in seven weeks following the deal. In Russia, the ruble firmed both against the dollar and the euro, approaching levels where the central bank would be set to intervene. Brent blend oil gained $2.15 to $111.06 per barrel, while the WTI added $2.51 to $92.71.
Russian stocks reacted buoyantly, the RTS climbing 4.52 percent to 1,599.20 and the MICEX up 2.84 percent to 1,542.20 by 5:00 pm Moscow time on Thursday.
“The decisions taken at yesterday’s summit are truly fundamental: recapitalization of major banks will help avoid serious shocks in the financial sector if the economic situation worsens, the 50 percent Greek debt write off will boost market confidence in the future, as the risks of a default there will be much reduced,” Investcafe analyst Anna Bodrova said.
The real effect of the anti-crisis plan would only be seen in a few years however, when the eurozone economy began functioning independently, she said.
“Recapitalization of banks and increasing reserve requirements is generally a very sound move from a strategic point of view, because the risks for the banking sector are quite high, mostly due to junk bonds on the banks’ balance sheets,” Bodrova said, adding that the EU needed to create a single economic center responsible for the reforms as soon as possible.
EU President Herman Van Rompuy said tafter the summit that the EU had new ideas about budget and fiscal control and the European Commission will prepare a preliminary program by December.
“On the eve of the summit, the question was about new approaches to monetary management in the eurozone. If these measures are implemented in 2012 taking into account previous mistakes, we can say that this kind of crisis will not happen again in the future,” Bodrova said.