Good morning. Welcome back to the live blog. European leaders finally clinched a deal in the early hours of the morning after 10 hours of negotiations. Our man in Brussels David Gow was there for the duration and filed this report just before 5am.
Greece's debt will be halved and the eurozone bailout fund strengthened, but as to whether this deal is the big bazooka the markets were looking for, we'll have to wait and see. While experts are poring over the full details, stock markets are expected to open sharply higher, with the FTSE 100 index in London set to rise more than 100 points.
A relieved French president Nicolas Sarkozy told reporters after the meeting ended Thursday morning:
We have reached an agreement, which I believe lets us give a credible and ambitious and overall response to the Greek crisis. Because of the complexity of the issues at stake, it took us a full night. But the results will be a source of huge relief worldwide.
Here's a summary of what was agreed:
• The firepower of the EFSF bailout fund will be increased to $1.4tn (€1tn)
• Banks agree 50% writedown in the face value of Greek government bonds
• Athens will be handed a new €100bn bailout early in the new year
• Bank recapitalisation - banks required to hold up to 9% of tier 1 capital by June next year, with a figure of €100bn mooted
Michael Hewson, market analyst at CMC Markets, said:
The question is whether it will be enough in the long term, or whether it has merely put off the day of reckoning, for a little while longer. While we now have some numbers to go on it will be all rather pointless of leaders don't find a way to stimulate growth and we still have the question of Italy's finances.
Given that the extent of private sector involvement for Greek haircuts has finally been agreed at 50% it is difficult to estimate how EU leaders arrived at the figure of €100bn, which seems rather low, given the 50% amount agreed.
Markets are celebrating the euro summit deal: the FTSE is up 123 points at 5677, a 2.25% gain while the Dax in Frankfurt has leapt 3.3% and the CAC in Paris has climbed 2.5%. Spain's Ibex is up 3.1% and Italy's FTSE MIB has added 2.7%.
Markets in Asia also rose overnight, with Japan's Nikkei closing 2% higher at 8926.54 while Hong Kong's Hang Seng climbed 2.2% to 19,492.
After months of dawdling, politicians were under huge pressure to come up with a decisive plan to prevent the debt crisis from pushing Europe and much of the developed world back into recession, and to keep the eurozone together.
Sarkozy will phone Chinese president Hu Jintao later this morning. China's official Xinhua news agency described the outcome of the summit as "positive but filled with difficulties".
It seems that all sides at this summit made big efforts and this will bring confidence to markets and also add impetus to the international community joining hands to respond to the current economic situation.
The hardest bit of the deal was Greece, whose debts are on track to balloon to 180% of GDP by 2020. To reduce this to 120% of GDP, private creditors will be asked to accept 50% losses on the bonds they hold. The Institute of International Finance, the banks' lead negotiator, said it was committed to working out an agreement based on that "haircut". But the challenge now will be to ensure that all private bondholders fall in line.
The 50% haircut equals a contribution of €100bn to a second rescue for Greece. The details are yet to be worked out, and the move has been sweetened by the inclusion of a €30bn contribution from eurozone member states to guarantee the remaining value of the new bonds.
Turning to the recapitalisation of European banks, here are the main points. The banks will be required to hold up to 9% of core tier 1 capital by June next year. They are expected to first seek private sources of capital, then national government support. If this support is not sufficient, recapitalisation should be available via an EFSF loan.
Banks are expected to increase capital by about €106bn. Greece needs to raise €30bn, Spain €26bn, Italy €15bn and France €9bn, though the amounts given are preliminary and based on banks' balance sheets as of June this year - a final figure based on September balance sheets will be provided in November.
Simon Lewis, chief executive of the Association for Financial Markets in Europe said:
The recapitalising of Europe's banks will not in itself solve the sovereign debt crisis. However, this plan is set within a timeframe that should enable them to determine how best to strengthen their capital positions in ways that treat all stakeholders fairly and allow the banks to fulfil their role in supporting Europe's economic recovery.
More reaction to the deal. Alan James, strategist at Barclays Capital, said:
The results of the summit appear to provide a framework that can offer a degree of stabilisation over the medium term if efficiently implemented, but without significant positive surprises relative to market expectations. The details and timetable for implementation of most measures remains vague.
While the official statement suggests the leveraging mechanisms could potentially multiply the firepower of the EFSF by four to five times, the efficacy of the structure is far from certain. On Greece, it remains unclear whether the €30bn from member states is new money, while even if this process is completed without further detail, there is still potential for it to be designated as a default trigger event, albeit today's agreement appear to have reduced this probability somewhat.
On bank recapitalisation, most of the €76bn estimated need outside of Greece is likely to come from the private sector, with Spain already indicating it does not expect state aid to be required. The initial market reaction of modest relief appears appropriate, in our view, but an extended normalisation rally is far from certain without more details on implementation.
Our man in Rome, John Hooper, has looked at the reaction to the euro summit deal there.
Italians woke up wondering whether their country had just become a Brussels protectorate. This morning's statement invites the Commission to provide a detailed assessment of the measures pledged by Silvio Berlusconi's government in a letter delivered to the summit "and to monitor their implementation". Radio 24, the station owned by Italy's bosses' union, said on its morning news it amounted to putting the country into special administration.
The other focus was on the reaction of the unions to a promise in the letter to make it easier for employers to fire workers in times of crisis, either for their firm or the economy. Raffaele Bonanni, head of the moderate, Catholic-oriented CISL trade unions federation, called it "an incitement to revolt".
The summit also left behind a diplomatic mystery.
Silvio Berlusconi somehow found time to do a quick interview with a late-night TV chat show in which he claimed Angela Merkel had apologised to him for the now-famous "smirks" between her and Nicholas Sarkozy last weekend when asked about their faith in Italy's ability to deliver on its undertakings. But Steffen Seibert, Angela Merkel's spokesman, flatly contradicted him on on Twitter saying there had been no apology "because there was nothing to apologise for".
@RegSprecher Steffen Seibert
@nomfup No apology from the Chancellor because there was nothing to apologise for. Berlusconi + Merkel have good, open talks among friends
At all events, the rift with France remains and is motivated more by Lorenzo Bini Smaghi's refusal to leave his seat on the ECB board where Italy will soon have two seats while France remains unrepresented. Italian reporters noted Sarkozy avoided any contact with Berlusconi last night, and the prime minister himself admitted he had been unable to speak to the French president. In his TV interview he appealed to Bini Smaghi to step down.
Apparently, Sarkozy rushed out of the leaders' meeting in the wee hours of this morning to be the first to give a press conference. Announcing the enlargement of the bailout fund to $1.4tn, he stressed: "$1.4tn - yes I said dollars. I'm not giving this information for European markets but for global markets."
Back in the UK, Bank of England policymaker Paul Fisher has warned there is a good chance that Britain could suffer another recession. He suggested more asset purchases could be necessary after the current round of quantitative easing is completed.
The economy has barely grown over the last 12 months, unemployment is rising and consumers are tightening their belts, hit by high inflation of 5.2%, higher taxes and declining real wages (adjusted for inflation). The economy came out of its last recession in mid-2009.
Fisher, the central bank's executive director for markets, said in an interview with Bloomberg TV:
I think it is a significant chance. Looking at the fourth quarter for example, at best it seems likely to be flat, could easily have negative growth, so the technical outcome of two quarters of negative growth in a row could quite easily come about.
Earlier this month, the Bank unexpectedly launched a second round of asset purchases worth £75bn, dubbed QE II, to try to stimulate growth. It has also kept interest rates at a record low of 0.5% since March 2009.
Fisher said:
It takes some time to purchase these large scales of assets, so we think the four months running up to February is a sensible period of time to buy £75bn. And when we get to that point we can stop and see whether or not we think we need to go further.
Fisher saw the biggest danger in inflation falling too far. "The big risk for us is that a significantly weak economy would push us back into deflation and that's the really tricky problem to get out of once you get there," he said.
With the government's hands tied by its pledge to reduce the deficit over coming years, the onus to boost growth has been on the Bank. "I think that the overall combination of a tight fiscal policy and loose monetary policy is the right one for the country at the moment," Fisher said.
He said Britain was viewed as a safe haven by investors. "If people did not have confidence in the UK, you would not see gilt yields as low," Fisher said. "I take some comfort from the stability of sterling."
Fisher also said that Britain's banks were in a better position than a year or two ago to weather the risks stemming from the euro debt crisis. "They've got big improvements in their capital base, big improvements in their liquidity; they've been deleveraging their balance sheets."
The US releases its first estimate of third-quarter GDP at 1.30pm London time.
Paul Fisher interviewed on Bloomberg TV
Here are excerpts from the transcript of the interview Bank of England policymaker Paul Fisher did with Bloomberg TV.
Bloomberg TV: Can I first ask you, what are the chances of a UK double dip recession?
Paul Fisher: Well hopefully the action we have taken with restarting asset purchase programme will diminish the chances of that happening. When you're in a recovery from the sort of recession and financial crisis that we've seen, we know from historical experience that it's always going to be a very long, slow, and bumpy process, and when you hit one of those bumps, as we are now, of course you're never quite sure if it is just a bump and the economy's going to come back or whether the economy will slide back approaching a recession, which is always possible with the sort of financial crisis overhanging.
BTV: Surely the probability is high, over 50% even, otherwise why restart quantitative easing?
PF: I think it is a significant chance. Looking at Q4 for example, at best it seems likely to be flat, could easily have negative growth, so the technical outcome of two quarters of negative growth in a row could quite easily come about. But hopefully we have spotted it coming and we've taken action which will help to prevent it.
BTV: How much of that probability do you think you have diminished by doing quantitative easing?
PF: Fairly significant. It is going to be difficult to tell. We won't actually see much of the impact from the asset purchase program by the time we finish in February, but hopefully it will put some confidence, some dynamic, back into the economy to help support it going forward.
BTV: When do you expect the rebound to start?
PF: A lot will depend upon what happens in Europe. If the situation there is resolved, and we get confidence back in the financial markets and the economy generally, then that will help enormously. If that doesn't happen, then we will have to look and see if we need to give more support.
The FTSE is still trading 115 points higher at 5667, and there is not a single faller at present. The banks, led by Barclays, and miners are the biggest risers.
Reuters has done a round-up of reaction to the deal.
World Bank president Robert Zoellick:
It's a very welcome and an important step because we have seen the ripple effects. I compliment the leaders of the European Union for facing and making difficult decisions. Of course problems like this can't be solved by waving a magic wand, and the implementation of the three core elements will require follow through to ensure that with the market reactions, the banks can function more effectively and to ensure that euro zone countries are able to roll over their debt.
I'm hopeful that this first important step will lay the foundation for a broader approach that will focus on helping the world economy resume growth, overcome joblessness, and support the innovations so we can get the world economy back on track.
Canadian prime minister Stephen Harper:
I see as positive steps, the actions taken by our European friends just a few hours ago," Harper said in the Australian city of Perth, where he will attend a summit of Commonwealth country leaders.
Of course, we still await the elaboration of further details and successful implementation, as we approach the G20 summit (next month).
Philippine central bank governor Amando Tetangco:
(The) market has welcomed the move ... The agreements are comprehensive, but require the cooperation of the European leaders, multilateral agencies like the IMF, and the private sector.
The burden sharing has been laid out, but this, I believe, rests quite firmly on what the statement calls 'reaffirmation of the inflexible determination' among member states to honour all their commitments to sustainable fiscal conditions and structural reforms.
This confidence is vital in ensuring the speedy normalisation in the markets. This morning we saw broad positive reaction from the market. But as they say, the proof of the pudding is in the eating. We are nevertheless hopeful the measures would be sufficient, at least, in shoring up confidence and calm in the markets.
Britain will not contribute to the eurozone bailout fund, George Osborne insisted this morning. The chancellor welcomed the deal, saying Europe was now in a "much better place." He also warned that instability in the eurozone had a "chilling effect" on the British economy.
He told BBC radio:
We are not going to contribute to the eurozone bailout, but we are members of the IMF ... We aren't turning our backs on the IMF. The agreement last night did not say the IMF was going to put additional resources into the eurozone.We will only contribute to resources that are available to all members of the IMF around the world, we will not contribute to a fund that is hypothecated, that is directly linked to the eurozone.
We are not going to contribute to a special purpose vehicle that is set up to attract sovereign wealth funds or the Chinese government – in other words, people with large surpluses. We've got a large deficit.
The head of the EFSF, Klaus Regling, has gone on a round-the-world trip to the BRIC economies begging bowl in hand to try and persuade these emerging economies to put money into the Special Purpose Investment Vehicle, something Brazil was said to have ruled out yesterday. On Friday, Regling will travel to China, which has huge cash reserves.
Eurozone leaders also agreed on more political integration. This will be done by cooperation within the eurozone but also by possible changes to European Treaties. As expected, the president of the European Council, Van Rompuy, received the task of looking into this issue and come up with first proposals by the end of the year.
The eurozone could be in for a happy ending, says ING economist Carsten Brzeski - but a French arthouse film ending rather than a US movie ending. Love it.
Was yesterday's summit the big breakthrough, calming markets and putting an end to the Eurozone sovereign debt crisis? Let's be honest, bringing Greek debt back to current Italian levels by the end of the decade is good but probably not the final word. Moreover, there are still many unknowns. Here are just a couple of them: what if Greece fails to deliver on the reforms in any of the next quarters until 2020? Will the PSI really provide 100bn euro? And, most important, how can the EFSF leverage be filled in and will it work?Bank recapitalisation, haircuts and more firepower for the rescue funds are supposed to form a Euro-style bazooka. Even if there are still loose ends and unsolved questions, yesterday's summit was an important step in the right direction. The eurozone could be on its way towards a happy ending. However, it will not be a US-movie happy ending, easy to understand with a big punch line. It rather looks like a French movie, often shown on Arte: highly complex with a lot of drama but still ending happily.
For a bit of light relief, here is a video of Silvio Berlusconi checking out the derrière of Danish prime minister Helle Thorning-Schmidt.
The FTSE has rallied to a three-month high. My colleague Katie Allen has looked at the London market in more detail on the market blog.
Holger Schmieding, chief economist at Berenberg, Germany's biggest private bank, said:
The deal tries to fix the mistakes eurozone leaders had made in July. At the time, they had agreed to restructure Greek debt without putting up a firewall to protect Italy against contagion risks. This time, the focus was very much on Italy. The fact that there is an enhanced deal is a positive.
Leveraging the EFSF up to €1tn yields an impressive amount of money. However, we are not convinced that – in case of a severe crisis – a first-loss insurance on sovereign bonds of 20-25% would really be sufficient to entice investors to buy newly issued Italian bonds, especially in the wake of a 50% haircut on Greek debt.
The deal has a reasonable chance to succeed, Schmieding judged.
In our view, the role which the ECB will or will not play remains crucial. Without ECB support, the chances of this deal putting an end to the euro debt crisis now are probably below 50%. If the ECB were to signal a willingness to act as a backstop of ultimate resort by buying bonds, the chances that the deal could put an end to the euro debt crisis would be well above 50%. The summit statement leaves the role for the ECB's bond purchasing open.
Many details still need to be fixed, including details of the 50% debt relief for Greece (by the end of the year) and of the two precise leverage options for the EFSF (by early November).
At the 3/4 November G20 summit in Cannes, international support through the IMF and direct contributions from emerging markets can be discussed.
In the short-term, continued austerity and bank deleveraging may have negative effects on the euro area economy. However, Europe continues on the path to fiscal rebalancing and is staying ahead of the other advanced economies in this respect.
More news from China. Foreign ministry spokeswoman Jiang Yu welcomed the euro summit deal.
We hope that this consensus... is conducive to boosting market confidence. China is willing to make joint efforts to preserve the global economic recovery and growth. China supports the measures taken by the EU to deal with the debt crisis problem.
She added that China stood ready to step up cooperation with the EU in the areas of investment, trade and finance.
French president Nicolas Sarkozy is due to speak to his Chinese counterpart, Hu Jintao, this afternoon by telephone about economic issues and next month's G20 summit in Cannes. An EU source told Reuters that Sarko is likely to bring up Beijing's possible participation in the bailout fund.
Heather Stewart, economics and business editor of the Observer, explains why China's participation is so important.
Klaus Regling, the man who runs the mega euro bailout fund, the EFSF, was already scheduled to fly to China tomorrow, but his trip will now be all the more important, because Europe's leaders are hoping Beijing will be part of the answer to their prayers.
As part of the rescue package agreed last night, they are planning to set up a "Special Purpose Vehicle" (remember those?), to hold some of the debts of bailed-out countries such as Greece and Portugal, and they are hoping cash-rich China - and perhaps other countries such as India and Brazil - would like to invest.
China have hardly been sympathetic to the Europeans' plight in recent weeks. Jin Liqun, the boss of the country's sovereign wealth fund, China Investment Corporation, said last week: "Europe is not really short of money. Europe needs to give a clear picture to the Europeans themselves and to the rest of the world that their problems could be worked out. The root cause of the trouble is the over-burdened welfare system, built up since the Second World War in Europe - the sloth-inducing, indolence-inducing labour laws. People need to work a bit harder, they need to work a bit longer, and they should be more innovative. We (the Chinese) work like crazy."
However, Europe is a major market for the export-dependent Chinese, and eurozone leaders are hoping the fear of a complete collapse of the single currency, together with China's well-known desire to diversify its mountain of reserves away from the dollar, could still persuade Beijing to subscribe.
Today's agenda:
• 9.00 Eurozone consumer confidence
• 11.00 CBI retail sales survey for the UK
• 13.30 US Third-quarter GDP - first estimate. Economists predict a 2.5% annualised rate, up from 1.3% in the second quarter
• 19.30 Nicolas Sarkozy to speak on eurozone crisis
All times are UK local.
Eurozone business and consumer confidence slipped further this month after plunging in September and August, to hit at a 22-month low. This reinforces fears that eurozone GDP could very well contract in the fourth quarter.
Howard Archer, chief UK and European economist at IHS Global Insight, said:
Tighter fiscal policy, the heightened eurozone sovereign debt crisis, weaker global growth and financial market turmoil are taking an ever increasing toll on economic activity across the eurozone.
The very serious possibility of eurozone GDP contraction in the fourth quarter, coupled with signs in the European Commission's survey that underlying inflationary pressures are easing, provides a compelling case for the ECB to cut interest rates next Thursday at its November policy meeting. Indeed, we believe that there is a very decent case for the ECB to cut interest rates by 50 basis points from 1.50% to 1% next Thursday, but we are far from confident that they will even enact a 25 basis point cut to 1.25%.
One complication surrounding any ECB move in November is that it will be Mario Draghi's first meeting as ECB President and he may be reluctant to see interest rates cut straight away in his tenure.
Ian Holm in the film The Emperor's New Clothes Photograph: AP Photo/Paramount Classics
Time for another round-up of metaphors and buzz words after the EU summit (my colleague Katie Allen did one last Friday). If you have spotted any others, please share them with us.
The latest comes from Jeremy Cook, chief economist at currency brokers World First, who said today that the recent market moves "have all the hallmarks of an 'Emperor's New Clothes' rally; the masses jump into a moving market and will exit quickly unless the dream is kept alive".
Jonathan Loynes, chief European economist at Capital Economics, said the latest measures "look more like a peashooter than the 'bazooka' previously promised to tackle the region's problems".
ING economist Carsten Brzeski came up with this little gem. "The eurozone could be on its way towards a happy ending. However, it will not be a US-movie happy ending, easy to understand with a big punch line. It rather looks like a French movie, often shown on Arte: highly complex with a lot of drama but still ending happily."
It was British prime minister David Cameron who talked of the need for a "big bazooka" approach, while Britain's foreign secretary William Hague insisted (before the summit) that the euro was a burning building with no exit.
The European Central Bank's Jürgen Stark warned last Friday that "there is a risk that water damage is much larger than damage done by the fire" when it comes to sorting out the crisis with ballooning rescue packages.
The FT quoted a European official last week: "We've lost the main parachute and we're on the reserve chute and we're not sure that will even work." Were the eurozone to break up, it might be called Eurogeddon, as suggested by a special report from the Economist Intelligence Unit.
Finally, Michel Barnier, internal market commissioner, went for a fever metaphor: "It is not the thermometer that causes the fever," he said. "But the thermometer has to work properly to ensure you do not exaggerate the fever."
The CBI retail sales survey is out. The decline in British retail sales eased this month, but the underlying trend remains weak despite an expected pick-up in the run-up to Christmas.
The retail sales balance - which subtracts those saying sales volumes rose from retailers saying they fell - improved to -11 from September's -15. The expected sales balance for November rose to +4, the highest since June. However, the three-month moving average for reported sales dropped to -34, the lowest since May 2009.
The CBI's chief economic adviser Ian McCafferty said:
Highstreet sales remain difficult but the decline has stabilised, and retailers expect there to be some very modest growth next month in the build-up to Christmas. Family budgets continue to be stretched... and consumer confidence is severely dented. Highstreet retailers are heavily discounting as they aim to provide the best possible value on basics. But consumers will continue on the back foot as real incomes remain squeezed.
A quick look at today's online newspapers.
"German tanks bring a new memorandum," declared the Greek mass-selling daily Eleftherotypia, referring to the memorandum of tough payback terms Athens signed up to when, narrowly avoiding default, it was bailed out to the tune of €110bn last year. Even worse, it said, the deal had been taken without Athens actively participating in negotiations.
It will mean permanent supervision of the Greek economy with the European commission establishing itself permanently in Greece to oversee the enforcement of the deal and to interfere in ministries whenever it considers it necessary.
Süddeutsche Zeitung, published in Munich, is leading on "50% is not always half". Johannes Aumüller writes:
The euro has been rescued - and the banks are heavily involved! These are the signals that should come from the Brussels summit, but some basic questions are still unanswered. It's possible that the financial institutions' involvement is less than the boldly formulated 50% - and that taxpayers have to guarantee billions more.
"Two-tier Europe," writes Carsten Volkery, London, in Germany's news magazine Der Spiegel.
The summit marathon in Brussels cemented the new pecking order in the EU - the euro countries are advancing, while countries like Britain are left out. The community is well on its way to a two-tier society.
Gavyn Davies writes on the Financial Times's blog:
In typical European fashion, a summit deal which seemed out of reach at midnight last night was triumphantly unveiled at 4am. The deal does not, and was not intended to, have any effect on the core problems facing the eurozone. There is still an urgent need to restore growth to economies which are hamstrung by uncompetitive business sectors, and continuous fiscal tightening. Recession still looms, especially in the southern economies.
What the deal is intended to provide is adequate medium term financing for sovereigns and banks which have been facing urgent liquidity problems. On that, it is notable that the summit has not really raised any new money, apart from an increase in the private sector's write-down of Greek debt by some €80bn.
All of the remaining "new" money, including €106bn to recapitalise the banks and over €800bn to be added to the firepower of the EFSF through leverage, has yet to be raised from the private sector, from sovereign lenders outside the eurozone, and conceivably from the ECB.
There is no guarantee that this can be done. The eventual out-turn of this summit will depend on whether this missing €1,000bn can actually be raised.
The Treasury, Bank of England and Financial Services Authority have coughed up an official reaction to the euro summit deal.
A spokesperson for the tripartite authorities said:
The agreement confirmed today on strengthening the European banking system is an important element of a resolution to the Eurozone crisis. The EBA has indicated no capital injection is needed for the major UK banks. They all have capital above the minimum 9% required. This reflects the actions taken to improve the resilience of the UK banking
system since the financial crisis began.
My colleague Helena Smith in Athens has sniffed out the general mood on the streets there.
Reactions in Greece, the country at the heart of Europe's debt crisis, are coming in thick and fast. Prime minister George Papandreou has welcomed the deal with nothing short of euphoria, saying it heralds "a new day" for the crisis-hit nation by relieving Greeks of the immense debt load that has haunted them for years. The Athens Stock Exchange shared in the joy, joining bourses across Europe now rallying at the news that a master plan had finally been reached to contain the crisis. Businessmen concurred that the deal, though bitter, was much better than bankruptcy.
But anger and despair were among the sentiments that this morning, at least, were also being expressed on the street. "Everyone we have talked to," said Christos Pontikis, a producer with the German state-run TV channel ARD standing with mike in hand in Syntagma square, "is very negative. They all believe that the new deal will mean two things: more austerity measures and foreign supervision of the economy. It's incredible. There's not been a positive voice."
On Ermou street, Athens' main commercial boulevard, men clustered around newspaper kiosks murmuring in disgust as they digested the news. "This is just the beginning of further misery," said Aris Pappas, a pensioner thumping the papers in disgust. "It is not going to bring us the breathing space that people say," he railed echoing the widely held view that by forcing banks to carry the burden of the write-down, the agreement would further dry up market liquidity and exacerbate Greece's recession.
Smith adds that the scepticism was shared by the Greek media with many commentators emphasising that as in the past, where aid has meant further belt-tightening, there would be no free lunch. All pointed to Angela Merkel's insistence that Greece's fiscal woes cannot be fully resolved without further hard-hitting economic reforms.
"Our nation sovereignty has been harmed irrevocably," warned a senior member of the conservative main opposition New Democracy party. "This is a terrible day for Greece."
Time for a lunchtime round-up. The FTSE has climbed 163 points to 5716, up nearly 3%. Germany's Dax and France's CAC are even stronger, rising 4.8% and 5.6% respectively. Markets have been cheered by the euro summit deal, which was clinched in the wee hours of Thursday morning. Many commentators are more sceptical, though.
We've had some interesting comments from readers. Johanes says:
According to the Spanish papers, it's the Spanish banks who are paying half of this sum through new mechanisms.
This ties in with some things I have read that says banks will in future not be treated on technical terms but on whether or not they belong to "loser" or "winner" countries. So for example, German banks equally exposed are sheltered and for example, Spanish banks punished. But it won't stop at banks.
If this is true, effectively Europe is now a 2-level (at least) organisation, with the big dominant nations making up the rules for macro purposes, and the rest doing what they're told, with the impoverishment of their populations.
Don't know if this has any resemblance to the "truth", whatever that is these days. But it's what some Spanish people think.
This just in from our Wall Street correspondent Dominic Rushe in New York.
In the US the stock markets have yet to open but futures – bets on the direction of the exchanges - have rallied sharply on the Eurozone news. Futures on the Dow Jones Industrial Average were up over 200
points earlier.In a couple of minutes we are expecting the US's latest gross domestic product figures. David Semens at Standard Chartered is expecting a 2.3% rise for the thir quarter, a sharp improvement on the second quarter's 1.3%. "We were particularly encouraged by the
better-than-expected retail sales release earlier this month," he writes.Consumer spending was down in the second quarter but the price of gas has since fallen so they may have picked up their shopping basket in the third quarter. That said the Conference Board's latest consumer confidence figures were dire, so pretty soon we'll get to see if there is a difference between how people feel and what they are doing.
US GDP in the third quarter is bang in line with expectations, rising at an annualised rate of 2.5%, according to the US Commerce Department. Car production picked up and the figure was well ahead of the dispiriting 1.3% GDP growth we saw in the second quarter.
More on the US GDP numbers. It's the fastest growth in a year, with consumers and businesses both stepping up spending. Consumer spending was the strongest since the fourth quarter of 2010 while business investment rose to its highest in more than a year.
Reuters has done this handy list of banks and how much new capital they will need to raise.
EU banks must raise €106bn in extra capital by the end of June 2012 to shore up their balance sheets. Banks will also have to take bigger losses on their Greek government debt holdings, which they will need to absorb.
GREECE - Total needs (European Banking Authority): €30bn
There is an existing 30 billion euro backstop facility to support Greek banks' capital needs under an EU/International Monetary Fund aid programme.
SPAIN - Total needs (EBA): €26.1bn
The government has said its banks will not need public funds. Convertible bonds will also be taken into account by the EBA, something Spain has pushed to be included. This will reduce the bill for Spain by about €9bn, economy minister Elena Salgado said in a radio interview on Thursday.
• Santander: €15bn
This does not include €8.5bn of convertible bonds. Once these are factored in, the capital shortfall is €6.5bn. It ays it will not need a capital increase and will not need to cut dividends. It aims to reach 10% core capital by June 2012, up from 9.42% at the end of the third quarter.
• BBVA : €7.1bn
Of that, €1.9bn is related to sovereign risk.
Says it can generate enough capital internally to meet the requirements and can maintain dividends.
• Banco Popular : €2.4bn
Can raise capital "organically" and through existing convertible bonds.
• BFA, the parent group of newly-listed bank Bankia : €1.14bn
Says it does not need public funds.
• La Caixa Group/Caixabank : €602m
It said it could generate capital organically.
FRANCE - Total needs (EBA): €8.8bn
Banks affected have all said they will not need government help and will raise funds by retaining profits. The state has said it will not intervene and that banks may have to cut dividends and bonuses to hit their targets.
• BPCE (unlisted parent of Natixis ): €3.4bn
• Société Générale : €3.3bn
Said it would meet requirements "through its own means".
• BNP Paribas : €2.1bn
Ruled out the need to raise capital in financial markets.
• Crédit Agricole : 0
PORTUGAL - Total needs (EBA) €7.8n
Banks will be focused on deleveraging but may consider turning to a €12bn credit line earmarked for the banks under an EU/IMF bailout package. Of that €7.8bn, banks already had to raise €3.4bn under a Portuguese bailout deal agreed in May.
• Millennium BCP : €1.75bn
• Banco BPI : €1.7bn
• Banco Espirito Santo : €687m
The bank said earlier this month it planed to raise €791m through an offer to swap debt for stock. It said this week that it will continue to deleverage and consider market options.
Some reaction to the US GDP figures. Kathy Bostjancic, director for macroeconomic analysis, at the Conference Board, was sceptical that the better growth performance would continue:
The better than expected performance this summer doesn't look sustainable. Continued woes in the housing market are overshadowed by consumer concern over the anaemic labour market, as highlighted by the decline in consumer sentiment back to 2008-09 levels. Weak sentiment could limit the rise in consumption through the holiday season and right into winter. Further, cuts in spending by state and local municipalities weigh on the economy. Business investment, inventory, and exporting hold the key to how much growth can be anticipated through the first half of 2012. Sustained economic growth above 2% is simply unlikely.
Meanwhile, Marcus Bullus, trading director at MB Capital, was more positive:
Just as the EU's sleep-deprived finance ministers arrived home to take the plaudits for their midnight hour eurozone debt deal, a surprisingly mild economic wind blew in from across the Atlantic.
Modest though it is, this uptick in the US economy will provide a welcome pause in the steady drumbeat of bad economic news which has echoed across America.
The markets will be heartened, and these better than expected GDP figures hint that there may be light at the end of the unemployment tunnel. Ben Bernanke's critics may yet be dining on humble pie - as this suggests that the Fed's two rounds of quantitative easing have at least partially stopped the rot. Such gains cannot just be down to a fall in fuel prices.
But progress remains fragile, as consumer confidence remains at a near historic low and big chunks of the global economy and the entire banking system are still dangerously leveraged. One positive dataset does not a recovery make.
The FTSE is now up nearly 200 points at 5743 and the euro has hit a seven-week against the pound. The British Bankers' Association has issued this statement in response to the summit:
It was good that EU leaders and eurozone countries came to a series of agreements last night on this complex sovereign debt crisis and multi-faceted problem. Everyone played their part - the relevant banks, the countries in difficulty and the Eurozone. We look forward to this bringing about the necessary stability to the system and note that early market sentiment around the world is positive. Bank recapitalisation has taken place here and so UK banks already meet the new requirements without having to raise further funds. We believe the eurozone should now focus on a quick implementation of the recovery plan and on building economic recovery.
Wall Street has opened and the positive mood on European stock markets is being echoed in the US. The Dow Jones Industrial Average is up more than 2%, or 237 points, at 12106.
In the UK the FTSE 100 is up 175 points, or 3.2%, at 5729, France's CAC40 is up 191 points, or 6%, at 3360 and Germany's DAX is up 320 points, or 5.3%, at 6336.
On government bond markets, the prices of UK government bonds and safe-haven German Bunds have fallen, but the prices of more risky Italian and Spanish government bonds are higher following the announcements out of the eurozone.
The FTSE rally holds up for now but analysts are already predicting it could fizzle out in coming days if we don't get more detail soon on exactly how the latest plan will be implemented and when.
The pattern of euphoria rally followed by caution sell-off has been seen many times over during the debt crisis.
My colleague Katie Allen has taken a brief look at previous announcements on possible Greek debt progress this year and tracked the FTSE's moves in the aftermath. In four out of the five cases she looked at, the first-day rally was quickly followed by a sell-off. There are more details in the market forces blog.
Now news out of Greece where finance minister Evangelos Venizelos has used a news conference to vow his country will make the most of the eurozone deal to cut its debt mountain.
Reuters reports that Venizelos says:
We must not lose this chance. It's too big ... We will push ahead with all structural reforms.
Venizelos also said the government had no new measures planned regarding pensions or wages.
Ed Balls' office has just sent through his reaction to the European debt deal from New York where the shadow chancellor has been at a conference with such stars of the economics world as Alan Greenspan and Axel Weber.
His office has shared the transcript of Balls talking from New York to Adam Boulton on Sky about the Brussels outcome:
I think that anything which gets the eurozone sorting out its problems and growing is a good deal for Britain. And I think today we have got to be cautiously positive. It wasn't announced until two or three in morning, this deal. I think the most important thing in the markets today is that the European Central Bank has actually intervened and bought Spanish and Italian debt and that shows that the ECB is doing its job. But fundamentally will there be the scale of financial backing for sovereign countries like Italy? We don't know. What will the actual details of this plan be? We don't really know. What is going to be the bank recapitalisation? We don't know. Will the European economy grow next year? That's really in doubt.
Asked if he would support George Osborne and David Cameron in saying that there is going to be no payment by Britain into the European fund and no contribution from Britain via the IMF into the fund, Balls adds:
I don't think it's sensible for Britain to make bilateral contributions to a euro bailout fund. The ECB should be doing this job.
More from my colleague Dominic Rushe in New York who is listening in on a call on the euro crisis at the Council of Foreign Relations.
Sebastian Mallaby, director of the Maurice R. Greenberg Center for Geoeconomic Studies is very gloomy. He says the goal to cut Greek debts isnt enough to save the country. "Even at 120% of GDP I don't think Greece is viable as an economy that can borrow in global markets," he said.
He's also not convinced that Nicholas Sarkozy can convince the Chinese to bail out the Eurozone (the French president has been on the phone to Beijing today.) "Why should the Chinese feel more compelled to bail out Italy than Germany," he asks.
The FTSE 100 has just closed up 160.6 points, or 2.9%, at 5713.8, a three-month high. UK banks are among the top risers as are miners.
Over on Wall Street, the Dow Jones is up 275 points, or 2.3%, at 12144.7.
More from Dominic Rushe in New York who has been listening to Sebastian Mallaby, director of the Maurice R. Greenberg Center for Geoeconomic Studies, talking about the European debt crisis at the Council of Foreign Relations in Washington.
Mallaby says he finds it "hard to understand" why stock markets are rallying given that the news from Europe contains "more gaps than solutions."
Mallaby says it's encouraging that European leaders are now talking about the right issues and that they have acknowledged the seriousness of the situation but he says there were no real surprises here and few concrete solutions to the crisis.
Benn Steil, senior fellow and director of international economics at the Council of Foreign Relations, points out that there are other factors driving the rally today, including the best US GDP figures so far this year. Following the close of the European markets, US markets are still on a tear. The Dow is up 280 plus points at the moment and on track for its biggest ever monthly point gain. The S&P 500 is on track to deliver it's best percentage monthly gain since January 1987.
So, after another day of excitement in the markets, we are closing for tonight. But, we will back bright and early tomorrow with more minute-by-minute developments in the European debt crisis.