European markets have been lifted in a late rally on a promise that EU authorities will draw up plans for a eurozone-wide bond to end fears over the sovereign debt of the bloc’s weakest economies.
The FTSEurofirst 300 index of top shares closed up 1.4 per cent after a day of choppy trading, while the UK’s FTSE 100 ended 52 points or one per cent up.
“Markets pared losses and surged into positive territory after comments from European Commission president Jose Manuel Barroso stating that the commission will soon present options for eurobonds,” said CMC Markets analyst Michael Hewson.
Barroso pledged that the Commission would soon publish a long-promised study on introducing euro-area bonds, seen as a potential solution to the debt crisis.
“Today I want to confirm that the commission will soon present options for the introduction of eurobonds. Some of these could be implemented within the terms of the current treaty, and others would require treaty change,” he told European lawmakers today.
Barroso said Europe was facing its most serious challenge for a generation with no simple solution.
"This is a fight for the economic and political future of Europe... this is a fight for integration itself," he said.
A ruling by Germany's top court last week made it nearly impossible for the government to pool debt with partners, unless the European Union treaty was changed.
Traders said Barroso’s comments had encouraged investors to pick up some stocks.
But Hewson said the market’s reaction was “ a little surprising” as Germany was anything but enthusiastic about the plan.
“This was quickly borne out by comments from German economy minister Philippe Roesler, who stated that the German government “expressly” opposes euro bonds, with the recent German high court decision apparently ruling that option out,” he said.
Joshua Raymond of City Index warned that Eurobonds would not appear overnight.
“Barroso himself maintains that to do so would require a treaty change, whilst the idea of a eurobond is impossible without a significant loss of fiscal sovereignty by member states, which might not be possible when there is already such disunity amongst Europe,” he said.
French banks featured among the worst performers list after Moody's downgraded the credit ratings of Credit Agricole and Societe Generale by one notch, due to their exposure to Greek debt.
Societe Generale ended down 2.9 per cent after earlier being more than ten per cent lower and BNP Paribas lost 3.9 per cent, to be the worst performers on the French CAC .
Finmeccanica topped the best performers list, jumping 16.9 per cent in volume nearly fourfold its 90-day daily average volume after a media report that General Electric was interested in buying its Ansaldo STS unit.