Markets welcomed news of a Greek deal with shares up across the board in London and other European financial markets. Shares were up after eurozone leaders “unanimously” reached a new Greek bailout deal which appears to have averted the danger of it leaving the single currency.
But the deal saw Greece forced to set up a €50 billion (£36 billion) fund of national assets including re-capitalised banks which will then be privatised under supervision from its lenders. Greece also had to reverse its stance and allow the International Monetary Fund’s involvement in its longer-term financial restructuring.
Greece’s Left-wing prime minister Alexis Tsipras claimed a small victory in preventing the asset fund from being transferred and run from abroad.
Speaking after an all-night summit in Brussels, he said: “The deal is difficult but we averted the pursuit to move state assets abroad.
“We averted the plan for a financial strangulation and for the collapse of the banking system.”
In London, the FTSE 100 index gained 40.75 points or 0.6% to 6714.13 and the German and French markets were up more strongly. In Paris the CAC gained 1.9%, Frankfurt’s DAX was up 1.4% and the broader Euro Stoxx index was 1.7% to the good.
Greek bond prices jumped rapidly with the yield on two-year bonds down almost 5% to around 24%.
Spanish, Italian and Portuguese bonds — which would potentially have been the next targets after a Grexit — all gained encouragement from the deal and the safe haven of German bonds saw a modest sell-off.
Greek banks and the Athens stock market remained closed for a third week. But US-listed exchange traded funds which replicate baskets of Greek shares rose more than 10% in early trading.
As well as containing the recapitalised banks, the Greek national assets fund is likely to include the state’s remaining 67% stake in Piraeus Port Authority, a 35% in the national electricity producer and a 10% residual stake in national telecoms group OTE. Jonathan Loynes, chief European economist at Capital Economics, said: “Our first reaction is that this will merely delay the inevitable. With the crisis having done enormous damage to the Greek economy and financial system in recent months, it is impossible to imagine that conditions will now return to anything like normal. Capital controls are likely to have to remain in place and the additional austerity needed to build up the primary surpluses will weaken the economy further.”
Greek debt stands at around €320 billion — a massive 180% roughly of the country’s annual gross domestic product. It has received two previous bailouts totalling €240 billion.