Markets rally in relief at EU summit outcomes.

Index	Value	Chg	% Chg
CAC40	3278.96	109.34	3.45 %
FTSE100	5661.64	108.40	1.95 %
FTSE MIB	16649.13	577.21	3.59 %
IBEX35	9059.10	226.60	2.57 %
Xetra DAX	6218.76	202.69	3.37 %

Phew!

Looks like markets have responded to the outcome of the EU summit with a huge sense of relief despite the numbers put forward being less than non-EU experts had suggested would be needed, and there being little, or no detail in place as yet.

The summit's decisions appears to have been sufficient to buy the EU time to flesh out the required detail and stave off what was looking like a potentially disastrous collapse of the Euro.

I am just now listening to Van Rompuy, (President of the EU Council ) who appears to be talking very intelligently about the extreme and varied forces that brought markets and economies to this point, how they and the contagion risk have been vastly underestimated, and the need for shared responsibility going forward.

Angela Merkel also looks to have starred managing to balance the politics of her domestic and European position particularly in galvanizing German parliament approval to leverage up the ESFS fund. In doing so she appears to have kept stakeholders ultimately focused on the EU and the Euro.

So what are we looking at in this "three pronged" deal:

- an agreement with private banks on a "haircut" of 50% on Greek debts

- Eurozone lenders to increase core capital by EU106bn (after Greek debt write downs)

- an increase to the Eurozone's ESFS bailout fund of EU1tn taking the total to EU1.4tn.

Although there is no detail yet you can see the main market beneficiaries are the French CAC; Germany's Xetra; and Italy's MIB with opening gains in excess of 3%.

As hoped for, Banks have accepted debt write downs. 

Historically, there have been many cases of banks taking significant debt write downs and, in most cases, have survived and recovered. 

But the difference this time, and the most significant unknown, was the risk of contagion, credit crunch and potential collapse of the banking system. 

I feel that an assumption out of today's agreement is that major lenders are not isolated and will continue to be backed.

However, the question I raised in an earlier post is still relevant here and that is where is the money going to come from? 

Surely its more than an assumption that China and Brazil will potentially add to any aid from the IMF but at what cost and what are the future implications.

Significantly, this could signal a real turning point with influence and wealth swinging between the old to the new emerging economies and could really change the investment rules across the global economy.

Other caveats continue to be around Greece and Italy regarding sovereign debt levels. Greece has obviously been given a huge breathing space but what will it do with it? 

As for Italy, still the next biggest domino in the firing line. It needs to set an example and take the necessary brave steps to rebalance its finances in line with its temporarily constrained prospects.

There is also still the nagging doubt that this agreement might not be enough. And, that it might only provide breathing space unless attitudes change and responsibilities are taken up.

As suspected Banks and Miners appear, at least initially, to be the major beneficiaries of the post EU summit relief and top the FTSE100 leaderboard. 

I understand Banks being there but not necessarily miners which, at least to me, seem more strongly linked to economic growth, which hasn't been resolved or discussed.

But, lets hope that this is more than a relief rally, that the detail is timely and, importantly, doesn't disappoint in order to provide some much needed stability.

Phew!

Related articles:

- www.thisismoney.co.uk: Market relief as eurozone leaders finally deliver rescue deal to force Greek debt 'haircut' and €1trillion bailout fund