Markets welcome bail-out for Greece as euro recovers

Published on 22/07/2011 18:19

WORLD markets rallied yesterday after eurozone leaders agreed a new €109 billion (£96 billion) rescue deal for debt-laden Greece, allaying fears of the collapse of the single currency.

The FTSE 100 Index in London was up 0.5 per cent yesterday, building on gains of a similar scale the day before, while in the US the Dow Jones Industrial Average, after rising 1.2 per cent on Thursday night on the original news, closed last night down 0.3 per cent.

French and German markets made similar advances and the euro rose to €1.13 against the pound.

Barclays, which has large exposure to Spain and Portugal, which were also seen as being at risk of default, was the biggest riser on the London market, up nearly 4 per cent on top of the previous day's 8 per cent gain.

The Royal Bank of Scotland was up more than 3 per cent, building on Thursday's surge of 6 per cent. There has been widespread volatility in markets in recent weeks as investors fretted that Greece could default on its massive loan repayments, which would spark chaos in financial markets across the world and could even bring down the euro. But an emergency summit in Brussels saw a radical new deal hammered out on Thursday which has brought relative calm to the markets.

Investors are piling back into stocks and appetite for risk is returning as the eurozone's collapse looks less likely.

Kathleen Brooks, research director at Forex.com, said: "The latest breakthrough on a second bail-out for Greece is enough to keep the markets happy for the next few months.

"It's holiday season, people are dreaming of sandy beaches, so we think the markets will accept this plan as more of a plastercast than a Band-Aid that will go some way at least to sorting out Greece's problems."

That view was also taken by other analysts, who believe the rally will be short-lived, as more details of the deal emerge and worries persist over the size of Greece's debt mountain.

Nevertheless, the bail-out was welcomed by the Chancellor George Osborne, who commended eurozone leaders on their "decisive economic action". He stressed to taxpayers that the government had delivered on its promise to keep the UK out of the bail-out. But he said Britain had a "huge interest" in a stable eurozone and called on political leaders to make the "longer-term changes needed to make the euro work".

Athens said that the bail-out brought it valuable breathing space. But the Fitch ratings agency declared Greece would be in temporary default as a result of its second bail-out since the first one in May last year.The agency pledged to give Greece a higher, "low speculative grade" after its bonds had been exchanged and said Athens now had some hope of tackling its debt mountain, which most economists still expect to force a deeper future restructuring.

The British travel industry reacted positively to the deal.

A spokesman for Abta, the British travel association, said that if the bail-out helped to bring stability to the Greek economy it would be good for the country's tourist industry, and British tour operators who send customers to the country.

"Their tourist industry is of fundamental importance as one of the key providers of employment in the country," he said.

"Bookings to Greece are up on last year. Images of demonstrations in Athens did have a negative impact, but tourist resorts were unaffected by the protests."

One travel expert warned that holidaymakers should plan carefully before heading for Greece despite the bail-out package.

"They should check with insurance companies that they are covered in the event of anything going wrong," said Rochelle Turner, head of research for Which? Travel.