Euro Leaders Turn Fund Into Bond ‘Firewall’ as Greek Rates Cut
2011-03-12 13:33:42.839 GMT


By Alan Crawford and Simon Kennedy
March 12 (Bloomberg) -- European leaders widened the scope
of the euro’s rescue fund, authorized it to buy government bonds
and eased the terms of Greek bailout loans as they unexpectedly
pushed through fresh measures to end the bloc’s debt crisis.
Under a pact struck at 1:30 a.m. in Brussels after eight
hours of talks, the bailout facility will now be able to spend
its full 440 billion-euro capacity ($611 billion) and to buy
bonds directly from governments. In a blow to European Central
Bank President Jean-Claude Trichet, it won’t be allowed to
purchase debt in the open market or to finance debt buybacks.
The agreement is part of a push by governments to draw a
line under the crisis, which has raged for more than a year
despite a series of remedies by European governments. Investors
had expected a deal to be delayed until a March 24-25 summit,
with the yields on Greek and Portuguese bonds this week rising
to euro-era records on concern officials would again fall short.
“I’m positively surprised, for a change,” said Andrew
Bosomworth, a money manager at Pacific Investment Management Co.
in Munich and former ECB economist. “The agreement contains
important elements of a firewall” that could stop the crisis
worsening.
Allowing the fund to buy bonds in the primary market
would help other indebted nations by acting as a backstop
should a Greek restructuring spook markets and threaten to
derail government bond auctions, he said.

Morning Accord

While Greece was told it would have the cost of its loans
pared and the repayment period extended, officials rejected
Ireland’s bid for relief as recently elected Prime Minister Enda
Kenny refused to yield to calls to raise its 12.5 percent
company tax rate.
The accord came at the end of a session that began after 5
p.m. following daylong talks among the 27 European Union heads
on the Libyan crisis. German and French officials this week said
they didn’t expect a comprehensive pact until the end of month
even as the debt ratings of Greece and Spain were cut and the
euro posted its biggest weekly drop since the start of 2011.
“This is an important message on the political pledge of
the euro members to fight for the euro’s stability,” German
Chancellor Angela Merkel told reporters. “Everyone had to make
a contribution. I hope that this will also be a good message to
the world in terms of the euro as a major currency.”
An initial deal last night on a plan to tighten economic
cooperation and boost competitiveness committed nations to enact
budget rules into law, a core German demand, and paved the way
for the final agreement by the end of the month.

Merkel Politics

By reaching an agreement now, Merkel avoided having to deal
with it in the run up to a March 27 regional election in Baden
Wurttemberg as her voters complain about having to bailout other
countries.
In return for acceptance of her conditions on controlling
debt, Merkel swung Europe’s biggest economy behind plans to
allow greater flexibility and firepower in the EU rescue fund,
the European Financial Stability Facility.
“This should go down well with the markets for now and
lead to an easing of the euro-zone’s sovereign debt crisis in
the near term at least,” said Howard Archer, chief European
economist at IHS Global Insight in London. “The leaders will
hope this is taken as evidence of their determination to do
whatever is necessary to hold the eurozone together.”
The EFSF had been limited to spending about 250 billion
euros due to reserves it had to hold for its AAA rating. The
commitment wasn’t matched with detail as Merkel indicated states
will increase their guarantees.

Trichet Tone

feels like today could be a Macro win win for this stock ....if NFP are good all stocks will rise ...if NFP not so good then the market will reduce chances of european rate hike next month which weighed on stock last 2 days

Also a good Spanish auction on thursday and the stronger euro breeding confidence that the European debt tensions are less than that of a month ago .