Markets give lukewarm welcome to German 'yes' vote on bailout

Merkel still has to deliver complete response to eurozone debt crisis, investors warn

There was relief in the markets after the German parliament approved the expansion of the European Union's bailout fund yesterday – but the optimism was tempered by persistent concern about the challenges on the road ahead as the eurozone grapples with its debt woes.

The Bundestag approved the extra powers for the European Financial Stability Fund (EFSF) that were agreed by officials in July. The German Chancellor, Angela Merkel, was able to push through the changes without resorting to support from opposition parties, with 315 legislators from the ruling coalition backing the plans.

The wide margin of approval – 523 votes for to 85 votes against the proposals, with three abstentions – was welcomed by the markets as a sign of Germany's commitment to resolve the debt crisis. Buoyed by the vote, the euro notched up steady gains against the US dollar, climbing as high $1.367 in the afternoon. It was also up against the yen and the Swiss franc.

Stocks were also higher, with the FTSE Eurofirst 300 index of leading European shares rising by 0.6 per cent. Supplementing the German vote came news of an upward revision in US growth figures for the second quarter, which helped to drive the FTSE 100 index as high as 5,350.18 in London.

However, the rally began to fizzle out as investors turned their attention to the road ahead. The FTSE 100 closed 0.4 per cent lower at the end of the day, with weakness in commodity stocks hitting performance. Although European shares ended broadly higher, they were off the session's highs when business came to a close.

Hours ahead of the German vote, the yield on Italy's 10-year bonds climbed to 5.86 per cent, its highest since the euro made its debut, at an auction of the country's debt. Although Rome was able to garner enough interest to issue bonds towards higher end of its targeted range, there was concern about the high interest rate. "[Those are] eye-watering yield levels," said David Schnautz, an analyst at Commerzbank.

After the German vote, the credit markets saw some improvement but again the rally proved unremarkable. The German Bund future, though lower, was little changed as the equity markets closed. "Beyond [the German] vote, nothing has changed and we are awaiting a more comprehensive response from eurozone policymakers," said Lee Hardman, a currency analyst at BTM-UFJ.

Gavan Nolan, a director of credit research at the financial data firm Markit, also highlighted the lack of meaningful gains in the aftermath of the vote. "Did the market embark on a strong rally post-vote announcement? Not really," he said.

He added that there were questions about further changes to the bailout fund, given recent speculation about leveraging the EFSF to expand the EU's ability to deal with the crisis. Once again, Germany was the focus of attention. "After the recent constitutional court ruling, it seems probable that more changes to the EFSF would require another round of parliamentary approval," Mr Nolan added. "This would test Merkel's mettle and create another trigger point for the market."

Suggested Topics
News
peopleHowards' Way actress, and former mistress of Jeffrey Archer, was 60
Sport
Chelsea are interested in loaning out Romelu Lukaku to Everton again next season
sport
News
Robyn Lawley
people
Arts and Entertainment
Unhappy days: Resistance spy turned Nobel prize winner Samuel Beckett
books
PROMOTED VIDEO
News
people
Life and Style
Troy Baker and Ashley Johnson voice the show’s heroes
gamingOnce stilted and melodramatic, Hollywood is giving acting in video games a makeover
News
i100
Life and Style
Phones will be able to monitor your health, from blood pressure to heart rate, and even book a doctor’s appointment for you
techCould our smartphones soon be diagnosing diseases via Health Kit and Google Fit?
Travel
Ryan taming: the Celtic Tiger carrier has been trying to improve its image
travelRyanair has turned on the 'charm offensive' but can we learn to love the cut-price carrier again?
News
people
Extras
indybest
News
ebookA unique anthology of reporting and analysis of a crucial period of history
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Senior Investment Accounting Change Manager

£600 - £700 per day + competitive: Orgtel: Senior Investment Accounting Change...

BA/PM,EMIR/Dodd-Frank,London,£450-650P/D

£450 - £650 per day + competitive: Orgtel: My client, a leading bank, is curre...

Senior Analyst - ALM Data - Banking - Halifax

£350 - £400 per day + competitive: Orgtel: Senior Analyst, ALM Data, Halifax, ...

Java developer - Banking - London - Up to £600/day

£500 - £600 per day: Orgtel: Java developer - Banking - London - Up to £600/d...

Day In a Page

Save the tiger: The day America’s love of backyard tigers led to a horrific bloodbath

The day America’s love of backyard tigers led to a horrific bloodbath

With only six per cent of the US population of these amazing big cats held in zoos, the Zanesville incident in 2011 was inevitable
Samuel Beckett's biographer reveals secrets of the writer's time as a French Resistance spy

How Samuel Beckett became a French Resistance spy

As this year's Samuel Beckett festival opens in Enniskillen, James Knowlson, recalls how the Irish writer risked his life for liberty and narrowly escaped capture by the Gestapo
Once stilted and melodramatic, Hollywood is giving acting in video games a makeover

Acting in video games gets a makeover

David Crookes meets two of the genre's most popular voices
Could our smartphones soon be diagnosing diseases via Health Kit and Google Fit?

Could smartphones soon be diagnosing diseases?

Health Kit and Google Fit have been described as "the beginning of a health revolution"
Ryanair has turned on the 'charm offensive' but can we learn to love the cut-price carrier again?

Can we learn to love Ryanair again?

Four recent travellers give their verdicts on the carrier's improved customer service
10 best over-ear headphones

Aural pleasure: 10 best over-ear headphones

Listen to your favourite tracks with this selection, offering everything from lambskin earmuffs to stainless steel
Commonwealth Games 2014: David Millar ready to serve up gold for his beloved Scotland in the end

Commonwealth Games

David Millar ready to serve up gold for his beloved Scotland in the end
UCI Mountain Bike World Cup 2014: Downhill all the way to the top for the Atherton siblings

UCI Mountain Bike World Cup

Downhill all the way to the top for the Atherton siblings
Save the tiger: The animals bred for bones on China’s tiger farms

The animals bred for bones on China’s tiger farms

The big cats kept in captivity to perform for paying audiences and then, when dead, their bodies used to fortify wine
A former custard factory, a Midlands bog and a Leeds cemetery all included in top 50 hidden spots in the UK

A former custard factory, a Midlands bog and a Leeds cemetery

Introducing the top 50 hidden spots in Britain
Ebola epidemic: Plagued by fear

Ebola epidemic: Plagued by fear

How a disease that has claimed fewer than 2,000 victims in its history has earned a place in the darkest corner of the public's imagination
Chris Pratt: From 'Parks and Recreation' to 'Guardians of the Galaxy'

From 'Parks and Recreation' to 'Guardians of the Galaxy'

He was homeless in Hawaii when he got his big break. Now the comic actor Chris Pratt is Hollywood's new favourite action star
How live cinema screenings can boost arts audiences

How live cinema screenings can boost arts audiences

Broadcasting plays and exhibitions to cinemas is a sure-fire box office smash
Shipping container hotels: Pop-up hotels filling a niche

Pop-up hotels filling a niche

Spending the night in a shipping container doesn't sound appealing, but these mobile crash pads are popping up at the summer's biggest events
Native American headdresses are not fashion accessories

Feather dust-up

A Canadian festival has banned Native American headwear. Haven't we been here before?