Friday

19th Oct 2018

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.

EU leaders worried about Italy's budget

Some EU leaders warned that Italy's plan to boost its budget spending despite the second largest debt in the eurozone, could hamper efforts to reform the single currency's framework.

News in Brief

  1. EU court orders Poland to suspend firing judges
  2. Japan to focus on circular economy at G20
  3. Italian budget 'significant deviation' from rules, says EU
  4. Podemos initiates debate on legalising marijuana in Spain
  5. Merkel: Focus on banking union at December EU summit
  6. Scotland confirms mad cow disease case
  7. European 'Green surge' set for repeat in Hessen election
  8. Rutte: summit was 'not the moment' for higher climate ambition

Airbnb agrees to clarify pricing for EU

The justice commissioner says the accommodation-rental website will better inform users about prices, and about the legal status of their 'hosts'. Facebook, however, could face sanctions if it doesn't comply with EU rules.

Stakeholders' Highlights

  1. International Partnership for Human RightsOpen letter to Emmanuel Macron ahead of Uzbek president's visit
  2. International Partnership for Human RightsRaising key human rights concerns during visit of Turkmenistan's foreign minister
  3. NORDIC COUNCIL OF MINISTERSState of the Nordic Region presented in Brussels
  4. NORDIC COUNCIL OF MINISTERSThe vital bioeconomy. New issue of “Sustainable Growth the Nordic Way” out now
  5. NORDIC COUNCIL OF MINISTERSThe Nordic gender effect goes international
  6. NORDIC COUNCIL OF MINISTERSPaula Lehtomaki from Finland elected as the Council's first female Secretary General
  7. NORDIC COUNCIL OF MINISTERSNordic design sets the stage at COP24, running a competition for sustainable chairs.
  8. Counter BalanceIn Kenya, a motorway funded by the European Investment Bank runs over roadside dwellers
  9. ACCACompany Law Package: Making the Best of Digital and Cross Border Mobility,
  10. International Partnership for Human RightsCivil Society Worried About Shortcomings in EU-Kyrgyzstan Human Rights Dialogue
  11. UNESDAThe European Soft Drinks Industry Supports over 1.7 Million Jobs
  12. Mission of China to the EUJointly Building Belt and Road Initiative Leads to a Better Future for All

Latest News

  1. Top EU banks guilty of multi-billion tax fraud
  2. Polish left a glimmer of hope in fight against illiberal democracy
  3. Europe and Asia seek stable relations in troubled times
  4. Asylum reforms derailed, as EU looks to north Africa
  5. EU leaders worried about Italy's budget
  6. Russian activist warning on 'fake news' as EU backs action
  7. Kaczynski: No question of Polish EU exit
  8. EU summit to accept urgency of climate action – but no measures planned

Stakeholders' Highlights

  1. International Partnership for Human RightsCivil society asks PACE to appoint Rapporteur to probe issue of political prisoners in Azerbaijan
  2. ACCASocial Mobility – How Can We Increase Opportunities Through Training and Education?
  3. Nordic Council of MinistersEnergy Solutions for a Greener Tomorrow
  4. UNICEFWhat Kind of Europe Do Children Want? Unicef & Eurochild Launch Survey on the Europe Kids Want
  5. Nordic Council of MinistersNordic Countries Take a Stand for Climate-Smart Energy Solutions
  6. Mission of China to the EUChina: Work Together for a Better Globalisation
  7. Nordic Council of MinistersNordics Could Be First Carbon-Negative Region in World
  8. European Federation of Allergy and AirwaysLife Is Possible for Patients with Severe Asthma
  9. PKEE - Polish Energy AssociationCommon-Sense Approach Needed for EU Energy Reform
  10. Nordic Council of MinistersNordic Region to Lead in Developing and Rolling Out 5G Network
  11. Mission of China to the EUChina-EU Economic and Trade Relations Enjoy a Bright Future
  12. ACCAEmpowering Businesses to Engage with Sustainable Finance and the SDGs

Join EUobserver

Support quality EU news

Join us