The Euro has appreciated following the EU summit deal on the Eurozone debt crisis. The agreement came after prolonged late night talks and for the time being has convinced the financial markets they have a response to the economic crisis. The deal will focus on 3 key points:
Firstly, private banks will be asked to accept a 50% loss on Greek government debt. This is expected to cut the nation’s debt load to 120% of GDP in 2020. Under current conditions, it would have grown to 180%.
Secondly, the European Financial Stability Facility (EFSF) will be leveraged four-five times and increased from €440 billion to €1 trillion.
Finally, the deal will aim to recapitalise European banks, which will be required to increase their core cash reserves to 9% by June 2012.
The Euro has appreciated back above 1.40 against the US Dollar and above 0.8760 (GBPEUR 1.1416) against the Pound. The market is likely to remain volatile and will continue to await and scrutinise the finer technical and legal detail and implementation of the agreement.