European Debt Deal: Markets Rally Because It Could Have Been Worse
Mark Memmott
Thursday, October 27, 2011 at 7:10 AM
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A pedestrian passes a vendor selling Greek flags in Athens on  Wednesday (Oct. 26, 2011). Greece's crushing debts triggered the latest crisis.
A pedestrian passes a vendor selling Greek flags in Athens on Wednesday (Oct. 26, 2011). Greece's crushing debts triggered the latest crisis.
Thanassis Stavrakis | AP

The consensus is that the agreement buys some time, but doesn't solve the continent's underlying economic problems. Still, failure to make progress could have been disastrous.

Marathon talks that ended around 4 a.m. local time today in Brussels produced a deal that European leaders hope will mark the beginning of the end of the continent's debt crisis, as NPR's Eric Westervelt reports for Morning Edition.

And financial markets are rallying on the news.

The Associated Press sums up the agreement this way:

"The strategy unveiled after 10 hours of negotiations hit on the three points expected for weeks. These include a significant reduction of Greece's debts, a shoring up of the continent's banks, partially so they could sustain losses on Greek bonds, and a reinforcement of a bailout fund so it can serve as a 1 trillion euros ($1.39 trillion) firewall to prevent larger economies like Italy and Spain from being dragged into the crisis."

So is everything fixed?

Not according to The Wall Street Journal's The Source blog. Here's the top of its post on the deal:

"OK, so the euro likes the look of this European deal on banks and Greek debt. And maybe it's even cheered by the 'spirit of solidarity' mentioned in some of the official statements. But make no mistake: this climb in the currency doesn't mean investors suddenly think the region has now been placed on a sustainable growth path.

"It is what market insiders call a 'relief trade.' In other words: things could have gone an awful lot worse. Phew."

That's basically what one analyst also tells Bloomberg News:

"The rally is more a reflection of the fact that expectations were very low," Philippe Bodereau, head of credit research at Pacific Investment Management Co., said in a telephone interview. "This has to be seen as an incremental positive but it is hardly 'shock and awe,' " he said. "There will be a bumpy road ahead."

And at The Financial Times' website, there's this analysis:

"In typical European fashion, a summit deal which seemed out of reach at midnight last night was triumphantly unveiled at 4 a.m. 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."

[Copyright 2011 National Public Radio]



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