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EU pledge fails to appease markets

Global developed stockmarkets gave last week’s accord between the European Union and Greece a muted reaction, while bonds rallied and the euro fell.

Despite small rises in European and Asian markets, the lack of any firm details of how the EU will deal with Greece’s debt meant the previous week’s falls were far from erased.

The euro meanwhile fell for three consecutive days amid concerns that any aid from the EU may be insufficient to deal with its huge debt problems.

News that Germany’s economic recovery stalled in the fourth quarter of last year also did not help sentiment, with its GDP showing
no growth.

More details of the EU deal will be announced this week, with any talk of bail-out being premature.
Last week the leaders of Greece, France and Germany met to discuss Greece’s debt problems, before a summit of all 27 nations in the European Union (EU27). The result of this meeting was an EU pledging to support Greece but stopping short of guaranteeing financial backing.

Herman Van Rompuy, the president of the European Council, who convened the summit, said: “Euro area member states will take determined and co-ordinated action if needed to safeguard financial stability in the euro area as a whole. The Greek government has not requested any financial support.”

Angela Merkel, the German chancellor, said: “Greece won’t be left alone, but there are rules and these rules must be adhered to. On this basis we will agree on a statement.”

The European Council later issued a statement, which said: “All euro area members must conduct sound national policies in line with the agreed rules. They have a shared responsibility for the economic and financial stability in the area.

“In this context, we fully support the efforts of the Greek government and their commitment to do whatever is necessary, including adopting additional measures to ensure that the ambitious targets set in the stability programme for 2010 and the following years are met.

“We call on the Greek government to implement all these measures in a rigorous and determined manner to effectively reduce the budgetary deficit by 4% in 2010.

“We invite the Ecofin Council to adopt at its meeting of the 16th of February the recommendations to Greece based on the Commission’s proposal and the additional measures Greece has announced.

“The Commission will closely monitor the implementation of the recommendations in liaison with the ECB [European Central Bank] and will propose necessary additional measures, drawing on the expertise of the IMF [International Monetary Fund]. A first assessment will be done in March.”

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