News that private investors will accept a 50% reduction in the face value of their loans to Greece, and that that country will be able to reduce its debt to 120% of GDP by 2020, were met by a rise in stock markets to around the levels of early August.
Banking shares performed especially well. There is still work to be done to recapitalize the region’s banks and grow its economies. But the news on Greece’s sovereign debt increased optimism that solutions will be found.
Debt at 120% of GDP will not be easy for Greece to finance.
“No complacency. Hard work now”, the outgoing president of the European Central Bank stated.
But the agreement seems to mark a turning point, since “risk assets are in demand” again. “Haven trades are losing ground.” The meeting pledged to increase the value of the European Financial Stability Facility to €1,000bn.
The head of market strategy at Lloyds Bank Corporate Markets said, “I think the announcement is enough to buy some time and generate a moderate risk-on phase. However, … growth and how to support the restructuring of economies … is not addressed and will need to be.”