MARKETS RALLIED after Germany’s constitutional court upheld the legality of euro zone bailouts, despite growing concerns about the Greek economy.
Although the ruling from the Karlsruhe-based court removed a big element of uncertainty over the euro zone rescue scheme, the judges handed a greater say over bailouts to German MPs.
In Brussels, the European Commission brushed off concern that this could hamper Germany’s power to respond to the crisis.
The chief spokeswoman for the EU’s executive branch said it had no doubt that German institutions would be able to comply with the ruling “while indeed maintaining their capacity to act effectively and decisively”.
After European stock markets hit a two-year low on Tuesday, the court’s ruling prompted a rebound yesterday as a rise in leading shares led to a 3.1 per cent increase in the FTSEurofirst 300 index.
The Swiss franc held close to the 1.20 per euro target set on Tuesday by the Swiss central bank in a bid to weaken the currency and prevent recession.
In Dublin, the Iseq advanced by close to 3 per cent.
US stocks rose too, snapping a three-day decline for the Standard and Poor’s 500 Index, as investors speculated President Barack Obama’s plan to inject more than $300 billion (€213 billion) into the economy, due to be presented today, will bolster growth.
“The market is trying to feel the ground for a bottom,” Barry James, president of James Investment Research in Ohio, said.
“It’s maybe going in the right direction, with the president showing a little more of a pro-business, pro-growth concept. If they can agree to something in Washington that’s along those lines, we’ll be pretty happy.”
After the suspension of talks with the EU-IMF troika on the release of Greece’s next rescue loan, finance minister Evangelos Venizelos said on Tuesday that he would speed up a series of delayed reforms and fiscal measures.
This includes a series of privatisations, a big area of contention between Greece and its euro zone sponsors. However, local reports in Greece that private creditor participation in a bond swap deal might fall short of target added to a sense of gloom about the halting progress of the rescue effort.
The likely take-up is said to be about 75 per cent of investors, well short of the 90 per cent target. Greece has warned failure on this target could block the initiative.
Any such failure would threaten the country’s second EU-IMF bailout – worth €109 billion – as euro zone leaders have ruled that the new aid plan is conditional on the participation of private investors.
In spite of warning signals about the likely take-up, the global banking lobby, which is chairing talks with investors, expressed a measure of confidence.
The International Institute of Finance insists it remains confident the plan will eventually win the necessary support.–
(Additional reporting, Bloomberg)
