Sunday

25th Aug 2019

First doubts emerge over eurozone deal

  • The New York stock exchange: Markets rebounded after Thursday's deal (Photo: DanDeChiaro)

Markets sky-rocketed on Thursday (27 October) in reaction to the eurozone deal sealed by EU leaders earlier that morning, but economists are starting to question the fine print, which Polish Prime Minister presciently dubbed as "hell" hidden in the details.

Stocks, commodity prices and the euro hiked on Thursday, as euphoria seemed to have gripped traders all around the globe after the second Greek bail-out, bank recapitalisation and an increase in the eurozone's guarantee fund was announced. One of the US indices, S&P, reached its highest monthly gain since 1974.

Read and decide

Join EUobserver today

Support quality EU news

Get instant access to all articles — and 18 year's of archives. 30 days free trial.

... or join as a group

But the details remain sketchy on how the current €440 billion worth of loan guarantees in the eurozone rescue fund (EFSF) will be boosted to around €1 trillion without any country increasing its contribution, via obscure financial engineering potentially including investments from China, Brazil and other emerging economies.

In addition, it is not clear how to reach the agreed 50 percent writedown on Greek debt for private investors. There is no clarity on how many banks will take part or which ones as the haircut is supposed to be voluntary.

The positive market reaction is "deja-vu", Sony Kapoor, an economist from Re-Define think tank told EUobserver, noting that the same has happened after each eurozone summit. "The fact that a deal has been agreed, any deal, impresses people. Until they start de-constructing it and parts start unravelling."

What is new, in Kapoor's view, is that leaders have started talking about important issues beyond Greece, such as strengthening the banking sector.

"But two big issues are still missing: a strategy for growth and the central role the European Central Bank has to play."

Economist Sony Kapoor analyses the outcome of the eurozone summit.

A deal, but...

Politicians around the globe welcomed the deal, but noted that fast implementation is now key.

“I was very pleased to see that the leaders of Europe recognise that it is both in Europe's interest and the world's interest that the situation is stabilised. And I think they have made significant progress over the last week and the key now is just to make sure that it drives forward in an effective way,” US President Barack Obama said.

Brazil's finance minister Guido Mantega, whose country eurozone leaders hope to see as one of the EFSF creditors, was even more cautious. "What worries me is the timeframe, if we have the necessary time for the plan's implementation if there is a deterioration in the world economy," he told reporters in Brasilia.

Heading into financing talks in Beijing, EFSF chief Klaus Regling on Friday conceded that he does not expect to reach a conclusive deal during his visit. But he added that China has been a constant customer for European bonds and hoped it will stay like that.

Banks around the world also issued cautious statements. Citigroup was "surprised" at the "enthusiasm" for the deal, "considering the lack of new detail." Deutsche Bank said the "final outcome crucially depends on the capacity to attract potential non-European investors" and France's Societe Generale saw the "long-term verdict" on the deal in the way bond markets react.

"It is premature to talk about containing the crisis when Italian 10-year yields were still dangerously close to the 6 percent mark and the positive initial reaction in currencies is probably the result of very low expectations," the French bank said.

In Brussels, Janis Emmanouilidis from the European Policy Centre thinktank also poured cold water on the enthusiastic reaction. The deal "is very complex and difficult to evaluate. It lacks a number of crucial details which still need to be elaborated, it leaves numerous questions unanswered, and it is by no means clear whether the overall package will stand the test of time," he said.

Polish leader Donald Tusk turned out to have given a good summary of the deal even before it was made.

"Everyone is impatiently awaiting the details but it's not the devil that's in the details, it's all of hell," he said before the marathon summit that started on Wednesday evening.

Opinion

Praise be to EU summits. You’ll miss them when they’re gone

With 14 'crisis' summits in the last 20 months, the era in which the summit was king is ending. While the biggest winners from have been the restaurant owners and hoteliers in Brussels, what of the losers, asks Benjamin Fox.

Exclusive

Brexit row delays financial products transparency review

A European financial regulatory body set up after the financial crisis is at loggerheads with the European Commission over whether to carry out a transparency review of certain financial products. The reason: Brexit.

Commission defends Mercosur trade deal

EU commissioners defended a far-reaching free trade agreement between the EU and four Latin American countries, against critics who fear it will damage European farmers' livelihoods and the global environment.

EU hesitates to back France over US tariff threat

France has passed a new tax on tech companies that will affect US global giants like Facebook. Donald Trump has threatened retaliatory tariffs over it. The EU commission says it will "coordinate closely with French" on the next steps.

EU banks more vulnerable to shocks than feared

Eurozone banks, such as Deutsche Bank, might be much more vulnerable to a repeat of the 2008 financial crisis than EU "stress-tests" have said, according to a new audit.

News in Brief

  1. Ocean Viking to disembark in Malta after ordeal
  2. Germany joins France in world outcry on Brazil fires
  3. British people lose faith in Brexit deal
  4. Brexit hardliners want further changes to EU deal
  5. German manufacturers confirm fear of recession
  6. Belgian socialists and liberals scrap over EU post
  7. Fall in EU migration leading to UK skills shortages
  8. Switzerland makes post-Brexit flight preparations

Opinion

Why von der Leyen must put rights at core of business

Ursula von der Leyen's in-tray must include those European executives on trial for systematic workplace harassment, the break-up of European slavery rings, and allegations of European companies' abuse in palm oil, including child labour, land grabs, and deforestation.

Stakeholders' Highlights

  1. UNESDAUNESDA reduces added sugars 11.9% between 2015-2017
  2. International Partnership for Human RightsEU-Uzbekistan Human Rights Dialogue: EU to raise key fundamental rights issues
  3. Nordic Council of MinistersNo evidence that social media are harmful to young people
  4. Nordic Council of MinistersCanada to host the joint Nordic cultural initiative 2021
  5. Vote for the EU Sutainable Energy AwardsCast your vote for your favourite EUSEW Award finalist. You choose the winner of 2019 Citizen’s Award.
  6. Nordic Council of MinistersEducation gets refugees into work
  7. Counter BalanceSign the petition to help reform the EU’s Bank
  8. UNICEFChild rights organisations encourage candidates for EU elections to become Child Rights Champions
  9. UNESDAUNESDA Outlines 2019-2024 Aspirations: Sustainability, Responsibility, Competitiveness
  10. Counter BalanceRecord citizens’ input to EU bank’s consultation calls on EIB to abandon fossil fuels
  11. International Partnership for Human RightsAnnual EU-Turkmenistan Human Rights Dialogue takes place in Ashgabat
  12. Nordic Council of MinistersNew campaign: spot, capture and share Traces of North

Latest News

  1. Spain heading for yet another general election
  2. EU to discuss Brazil beef ban over Amazon fires
  3. 'Our house is burning,' Macron says on Amazon fires
  4. What happens when trafficking survivors get home
  5. EU states and Russia clash on truth of WW2 pact
  6. EU considers new rules on facial recognition
  7. EU to pledge Africa security funds at G7 summit
  8. Letter from the EESC on per diem article

Stakeholders' Highlights

  1. Nordic Council of MinistersLeading Nordic candidates go head-to-head in EU election debate
  2. Nordic Council of MinistersNew Secretary General: Nordic co-operation must benefit everybody
  3. Platform for Peace and JusticeMEP Kati Piri: “Our red line on Turkey has been crossed”
  4. UNICEF2018 deadliest year yet for children in Syria as war enters 9th year
  5. Nordic Council of MinistersNordic commitment to driving global gender equality
  6. International Partnership for Human RightsMeet your defender: Rasul Jafarov leading human rights defender from Azerbaijan
  7. UNICEFUNICEF Hosts MEPs in Jordan Ahead of Brussels Conference on the Future of Syria
  8. Nordic Council of MinistersNordic talks on parental leave at the UN
  9. International Partnership for Human RightsTrial of Chechen prisoner of conscience and human rights activist Oyub Titiev continues.
  10. Nordic Council of MinistersNordic food policy inspires India to be a sustainable superpower
  11. Nordic Council of MinistersMilestone for Nordic-Baltic e-ID
  12. Counter BalanceEU bank urged to free itself from fossil fuels and take climate leadership

Join EUobserver

Support quality EU news

Join us