Investors praise policymakers’ rescue deal
Please respect FT.com's ts&cs and copyright policy which allow you to: share links; copy content for personal use; & redistribute limited extracts. Email ftsales.support@ft.com to buy additional rights or use this link to reference the article . Investors praised European policymakers for moving more quickly than expected to tackle the problems of the eurozone’s troubled peripheral economies, after a sharp market sell-off last week sparked fears that the region’s crisis was about to deepen. An unexpected deal in Brussels, agreed in the early hours of Saturday morning, came as a relief to many investors and strategists after one of the worst weeks of the year for the eurozone’s indebted economies of Greece, Ireland and Portugal. Please respect FT.com's ts&cs and copyright policy which allow you to: share links; copy content for personal use; & redistribute limited extracts. Email ftsales.support@ft.com to buy additional rights or use this link to reference the article. Market participants said the main decisions were on the increase in the size and scope of the temporary eurozone rescue fund, the European financial stability facility, and the reduction of interest rates for bail-out loans to Greece, prompting hopes that the peripheral bond markets would open strongly on Monday. “European leaders have delivered a genuine surprise, just when the market was starting to fear the worst,” said Steven Major, head of global fixed income research at HSBC. He warned that the Brussels agreement lacked detail but stressed that policymakers had given themselves an essential breathing space, until a summit at the end of the month, to come up with a more comprehensive statement on how the initiatives would work. Francesco Garzarelli, director of economic research at Goldman Sachs, added: “The main positive out of the meetings was simply the fact there was some news, as most investors doubted any agreement was at hand.” He picked out as important initiatives the more generous terms for Greece with reduced interest rates, the bigger EFSF – which will now be able to use its full lending capacity of €440bn ($607bn) for emergency loans – and the decision to allow the EFSF and its successor, the European stability mechanism, to buy government bonds. Mr Major said that decision was “perhaps the biggest game-changer”. This, he added, supra outlet was because it will allow the EFSF to buy new debt in the government bond auctions, something the ECB cannot do. The ECB is only allowed to buy existing bonds in the secondary market. “The auctions of the periphery have become big market events over the last year because there has been a growing risk of a failed auction, where investors refuse to buy bonds,” Mr Major said. Allowing the EFSF to take part in the auctions will reduce the risk of an auction failure and prevent market sell-offs. David Mackie, head of western European research at JPMorgan, praised the cut in the cost of emergency loans. “We have argued that liquidity support [emergency loans] that is being provided is too expensive to enable the peripheral sovereigns to achieve anything more than simply stabilise their debt,” he said. The 1 percentage point cut in the cost of loans for Greece was not enough, he said but stressed that it was a step in the right direction. Ireland is still negotiating over the cost of its loans because of pressure from Germany and France for Dublin to increase domestic company taxes before they will agree to lower emergency interest rates. One senior investor said: “We will have a meeting on Monday to discuss whether we will buy peripheral debt again. I think this weekend’s events will stabilise the periphery and should see more big funds prepared to buy the bonds of these countries.”