Encouraging News Out of Europe

PRLog (Press Release) - Oct. 28, 2011 - Responding to global pressure to do take action on the region’s financial crisis, European leaders have convinced bondholders to accept a 50% loss on Greek debt and increased the volume of the EFSF to 1 trillion Euros ($1.4 trillion). Ten hours of tense balancing on the precipice of a breakdown of the second crisis-related summit in four days led to the development of a plan which, according to Euro zone politicians, could mean a path out of the debt hole.  The last, time-crunched negotiations with bank representatives led to an easing of Greece’s debt burden. The main target of the agreements reached is to reduce the time Greece spends in “quarantine” recovering from its illness, as well as preventing speculation against Italy and France which could devastate the Euro zone and disseminate global economic chaos.

DT Trading analysts explain that, in order to implement such a plan to “quarantine” Greece, the country needs to reduce its level of government debt to 120% of GDP from the current 160% within 10 years.

German Chancellor Angela Merkel spoke to journalists in Brussels around 4:15AM this morning, saying “the entire world’s attention was focused on these negotiations. We, the Europeans, showed today that we made the right conclusions.” The measures adopted include providing lines of credit to European banks upon the security of their shares, the potential of larger loans from the International Monetary Fund, obligating Italy to take bigger steps toward reducing its debt, and a pledge from leaders that the European Central Bank will continue to buy bonds on the secondary market. Buying government bonds on the secondary market signals that the ECB will not acquire them at the market price, which is inflated to some extent and may be used only for speculative aims and not for strategic investments.

The Euro appreciated and stocks also rose. The Euro rose 0.7% against the dollar to reach $1.4007 as of 9:45AM in Brussels. The Stoxx Europe 600 Index rose 2.5%, while futures on the Standard & Poor’s 500 Index rose 1.6%.

The agreements reached early Thursday morning also had a strong effect on traders of European bank shares, in particular, of French banks. Shares of Credit Agricole and BNP Paribas shot up 12% this morning, while Societe Generale’s increased 11%. Shares of Barclay’s Plc rose 10% and those of Deutsche Bank AG, the largest creditor in Germany, rose 7.9%.

The largest world banks agreed to what Merkel called “the last word:” agreeing to give half of the value of the Greek government debt they hold to the Euro zone’s common cause of ending the financial crisis. However, DT Trading analysts think that talking about the end of the financial crisis before forming specific agreements with each of the banks is somewhat premature. The agreement involves the exchange of short-term bonds the banks already hold and which have already reached maturity, for bonds with 30-year maturity periods. The Institute of International Finance, which represents 450 financial companies, agreed to “develop specific, voluntary agreements” on the 50% curtailment of Greek debt, said Managing Director Charles Dallara early this morning at 4:26AM in Brussels. Euro zone leaders, who invited Dallara to the meeting at midnight during a break in the 10-hour summit, said that as of right now the bond-exchange deal remains voluntary.

DT Trading Limited Analytical Department

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