As the thirteenth EU summit aimed at devising solutions to combat the debt crisis reached halfway, policy makers debated a number of ideas raising hopes across global markets that a resolution would be reached. On Monday, markets across the globe advanced, depicting cautious optimism in investor sentiment. U.S. stock index futures edged higher as futures on the Dow Jones Industrial Average rose 32 points to 11789. The S&P 500 Index futures gained 3 points to 1,238.20, while Nasdaq 100 futures added 9 points to 2,343.25 (Reuters). Futures for the Euro STOXX 50, Germany’s DAX and for France’s CAC were all reported between 0.8 and 1 percent. In addition, analysts predicted Britain’s FTSE 100 to open as much as 1.1 percent higher (Bloomberg). The Euro rose as much as 0.4 percent to $1.3951, trading at $1.3897 at 9:49 a.m. (Bloomberg) in Berlin reflecting optimism as negotiations are underway for a road map for a solution to the crisis.
According to the IMF chief, Christine Lagarde stated that European leaders have made “very good progress” on plans to resolve the crisis. French and German leaders announced that the group had developed a consensus which included a decision on the European Financial Stability Facility (EFSF). Contrary to the French plan of increasing the size of the bailout fund, according to reports, Germany was successful at achieving of its summit aims by proposing the pledging of the EFSF as collateral to guarantee government bond sales. Another option placed on the table includes setting up an EFSF-insured fund which would seek private investment in troubled bonds. A separate statement released indicated the need for ‘adequate’ IMF resources to assist the troubled region in addition to contributions from surplus countries.
Further details are yet to emerge on Wednesday on the decision to increase the EU bailout fund and a 50% write-down of Greek debt repayments. However, the meeting was not without fury as an argument reportedly erupted between the French President, Nicholas Sarkozy and British Prime Minister David Cameron. The French President claimed that he was “sick” of the British Prime Minister giving European lenders advice on how to tackle the crisis and was quoted as saying “We are sick of you criticising us and telling us what to do. You say you hate the euro and now you want to interfere in our meetings.”
EU leaders have accepted a framework for a recapitalization plan for European banks which is estimated to be in the €107 billion to €108 billion range. Furthermore, leaders mutually agreed on the reinforcement of economic regulations and governance within the EC. On the other hand, negotiations with banks to take losses on their bond holdings advanced slowly and the final decision is expected upon conclusion of the summit which will take place on Wednesday. The ECB has bought €165 billion worth of bonds in an effort to pacify markets. Global financial markets are on full alert expecting what they call ‘a comprehensive solution to the euro zone problem.’ Thus, Wednesday’s decision will clearly highlight which direction policy makers intend to drive their debt-ridden nations.