The euro rose and world shares recovered in early trade, as a deal to free up the next batch of Greek aid edged closer.
Greek Prime Minister, Lucas Papademos, said negotiations over a debt deal had progressed during talks held after the EU summit:
“There has been significant progress on the basic economic parameters. Over the next days, the talks will continue and the goal is to achieve an agreement, in parallel with the completion of the consultations regarding the new economic program for Greece.”
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The euro was up 0.35% in early trade, edging toward the six-week high hit last week. And the FTSEurofirst 300 was up 0.5%, with banks among the top gainers.
A Greek debt deal is crucial if the country is to get the bailout it needs. The aid package, which is expected to total 130 billion euros, needs to be finalized by mid-February to avoid a messy bond default.
But just as Greece’s problems move towards a resolution, concerns are growing for Portugal.
Lisbon’s borrowing costs have soared, and fears of a second bailout request are mounting. Ten-year government bond yields are around 17.2% after breaking through the 17% level on Monday.
The latest summit in Brussels cements German Chancellor Angela Merkel’s political domination of the European Union. Twenty-five out of 27 EU nations have signed up to a pact for stricter budget discipline. But Dominic Johnson from Somerset Capital Management says EU treaties haven’t addressed the problems so far:
“Every month or so, there was another treaty, there was another announcement, another haircut – it sounds like a giant barber shop quartet. And then the markets rally and say, ‘Phew, that’s the end of that one, let’s now talk about something more positive.’ And of course, a few days, weeks, or months later, the problems rear their heads again because the fundamentals are not there.”
Despite the positive mood in the markets, the crisis is still far from resolved. And the economic health of Spain and, in particular, Portugal remains uncertain.