Global markets relieved by Greece bailout

2011-07-22 12:56

Relief at a bailout package for Greece drove global shares higher today after European leaders made sweeping changes to a rescue fund in an effort to seal larger economies off from the continent’s debt crisis.

News of the €109-billion (R-trillion) package of loans for Athens caused the yields, or interest rates, on the country’s bonds to fall sharply.

The plan promised to reduce Greece’s overall debt burden – crucial to helping it beat a path out the cycle of borrowing.

But the most radical part of the deal announced yesterday is that it allows countries to tap rescue funds before their borrowing costs reach a critical level, a plan that leaders hope will mean they can shore up faltering economies preventively and stop the march of the crisis.

Those steps were broader than expected, and the rally that began as the deal took shape yesterday continued strongly a day later.

The euro also continued its surge, moving to $1.4407.Greece’s mountain of debt “in itself will be sufficient to cast a long shadow over the country’s efforts to stabilize its debts these next few years and its efforts will be hostage to the fortunes of the global economy and some fairly optimistic growth projections,” said Neil Mellor of Bank of New York Mellon.

And the question still remains whether Greece will be the last country dragged into the crisis.

So far Ireland, Portugal and Greece have all needed bailouts because investors who considered them bad risks demanded exorbitant rates to lend them money.

The fear has been that Italy and Spain could fall into the same trap, and that trying to bail out the eurozone’s third- and fourth-largest economies would bankrupt the union.

The yields on Italian and Spanish slid again today and were well below the threshold 6% mark they had reached earlier.

Still, Benjamin Reitzes, a senior economist with BMO Capital Markets, said that there “appears that there’s little here to keep markets from eventually putting renewed pressure on Italy or Spain, if they run into any speed bumps”.

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