27.10.2011
By Simon Miller
European markets have opened up after European leaders appeared to have settled on an action plan for the troubled eurozone.
As of 09.50 BST, the FTSE 100 was 2.03% up while the CAC40 was up 3.54%. Meanwhile, bond markets reacted positively with yields for Spanish, French and Italian debt declining.
Markets reacted optimistically to the latest action plan from the eurozone which will see private holders of Greek debt take a 50% haircut - albeit with a €30bn (£26bn) of "credit enhancements"; a bulked up European Financial Stability Facility and more scrutiny of eurozone members' budgets.
European banks will have to find €106bn of fresh capital within eight months as the eurozone demands a 9% capital ratio.
French banks would target €8.8bn, Spanish banks would target raising €26.2bn, German banks would aim for €5.2bn, and Italian banks will need €14.8bn.
In the communique released after negotiations went into the early hours of this morning, the eurozone revealed that the €440bn EFSF will have between €250bn and €275bn available after providing aid to Greece, Ireland and Portugal.
However, it planned to quadruple the fund to around €1trn through a combination of a special purpose investment vehicle and a debt-insurance scheme.
Euro-leaders would also look to the International Montary Fund to further boost the fund's resources.
Private debt holders in Greece have agreed a nominal 50% haircut which is hoped will reduce the country's debt burden by €100bn, bringing the debt to 120% of GDP by 2020.
The eurozone is also aiming to complete Greek rescue package negotiations by the end of the year and the value of the second bailout could reach €130bn.
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