Equity markets climb on growing hopes of solution to eurozone crisis

Global equity markets and the euro climbed yesterday on investor hopes that European leaders will hammer out a lasting solution to the eurozone’s two-year debt crisis over the coming days.

It came as the head of the British Bankers Association claimed that any likely resolution of the Greek debt crisis, the risk of contagion to other countries such as Spain and Italy, and the needed recapitalisation of European banks, inevitably meant “some countries will end up paying for others”.

With events on a knife‑edge, anticipation of progress on a political deal still saw the FTSE 100 index in London close up 103.97 points at 5,488.65. Wall Street was trading up about 200 points up by the London close.

The optimism carried over into the currency markets, where the battered euro jumped 0.4 per cent to $1.383 after climbing as high as $1.385.

Ahead of a key meeting of European finance and political heads in Cannes this weekend and a further meeting planned next Wednesday, Angela Knight, the BBA’s chief executive, said: “It will be difficult to see whether this is acceptable to them unless there is to be stronger fiscal governance across the euro zone. Monetary policy and fiscal responsibility go together.”

The head of Britain’s banking industry trade body said a key part of stabilising the eurozone was resolving the Greek debt spiral by “properly re‑pricing the country’s assets, sovereign and (other) debts. Greece will then have a credible economy”.

She said some euro zone banks would need recapitalisation, possibly through their country’s taxpayers, and if this proved impossible “it may mean that some banks should be wound down”.

Senior European sources said Berlin and Paris remained at odds on two core elements of the plan to ringfence Greece and stabilise bond markets. These are how to scale up the eurozone’s rescue fund, the European Financial Stability Facility (EFSF), and the details how Greek debt should be reduced.

A further warning came as ratings agency Standard & Poor’s revealed it would likely lower the credit standing of five European nations, including France, by one or two notches if the region slips back into recession and government borrowings increase. Other countries in the firing line were Spain, Italy, Ireland and Portugal, S&P said.