But European traders are sceptical as Greek bailout rally fades
US MARKETS ignored the shakiness of the Greek bailout deal yesterday, with bullish investors pushing the Dow Jones through the symbolically important 13,000 mark for the first time since before the financial crisis.
But Europe’s markets slipped as worries mounted that politicians had comprehensively failed to put an end to Greece’s debt woes.
The Dow Jones ended the day up 0.12 per cent at 12,965.69 – having earlier passed 13,000 for the first time since May 2008. Investors remain optimistic about the country’s growth and employment prospects, boosted in part by steady support from the Federal Reserve’s quantitative easing.
However, European stocks dropped as economists criticised the Greek deal, arguing it was based on “ludicrous” economic growth forecasts and that another bailout would be needed soon for it to stay in the Eurozone.
Germany’s DAX fell 0.58 per cent, the French CAC dropped 0.21 per cent and the Euro Stoxx50 fell 0.34 per cent.
Portuguese government bonds took a hit as investors worried the country would be next to come under pressure, with 10-year yields rising 17.8 basis points to 12.433 per cent.
Commodities jumped as investors looked for safety, pushing gold up 1.69 per cent, while Brent crude oil, pushed in part by growing unease over Iran, settled up $1.61 at $121.66 a barrel.
Eurozone leaders claim the deal, which was struck in the early hours of yesterday morning, will prevent a Greek default and reduce the country’s debt from 160 per cent of GDP now to 120.5 per cent by 2020.
But this assumes the economy will contract by four per cent this year, stabilise in 2013 and grow strongly from then. ING economist Carsten Brzeski said such hopes were “largely based on the principle of wishful thinking”.
Many economists believe the bailout is unsustainable, with radical action needed soon. Ben May of Capital Economics said the country could even leave the Eurozone this year.
May said: “Even if weaker growth and budget slippage do not immediately prompt the bailout to collapse, Greece could still choose to end it if it decides that the medium-term assumptions embodied in the debt projections are unrealistic.”
While the Eurozone was setting up a full-time presence in Athens to monitor Greek spending, the EU was given a warning of its own by UK chancellor George Osborne, who voted against signing off the EU’s 2010 budget.
For the 17th year in a row auditors refused to sign off the budget, prompting the UK, Netherlands and Sweden to call on countries to “uphold the same high standards for the EU budget as they would for national budgets.”