A dramatic pre-dawn deal to save the euro and revamp the eurozone by leaders of the 17 eurozone nations brought immediate relief to crisis-hit Italy and Spain and sent markets soaring on Friday.
At the end of tense talks that stretched almost till dawn, EU president Herman Van Rompuy hailed a “real breakthrough” to calm financial markets and reshape the eurozone to prevent future crises.
European markets shot upwards, Milan and Madrid in particular gaining more than three points at the open.
The interest rates which Spain and Italy must pay to borrow fell sharply, although they began to edge up towards mid-day as analysts began questioning how the announced measures would be enacted.
“The summit is a clear success. It goes very clearly in the right direction because at last it puts in place efficient tools in the long term,” Natixis bank bond strategist Rene Defossez said in Paris.
Early reaction from Asian markets too was positive, with the Tokyo stock market closing up by 1.50 percent and oil prices and the euro surging higher.
“They took important steps forward last night,” said British Prime Minister David Cameron on arriving for the final round of a two-day summit crucial to the future of the embattled currency.
German Chancellor Angela Merkel said “we realised something important, but we remained faithful to our principles: no offers without something in exchange.”
Her freshly-elected French counterpart Francois Hollande, attending his first full summit, welcomed market response, saying “initial announcements have already had positive effects.”
The accord paves the way for the eurozone’s 500-billion-euro ($630 billion) bailout fund to recapitalise ailing banks directly, without passing through national budgets and thus adding to struggling countries’ debt mountains.
This however, would occur only after a eurozone-wide banking supervisory body is set up, with leaders aiming for this to happen at the end of the year.
Another key measure agreed was that eurozone bailout funds would be used “in a flexible and efficient manner in order to stabilise markets” — a reference to buying countries’ bonds to drive down high borrowing costs that in recent weeks have crippled Spain and Italy.