European stock markets closed firmer yesterday, coming off early lows after German Chancellor Angela Merkel softened her terms for a new Greek debt bailout, easing nerves about a possible Athens debt default. Dealers said Mrs Merkel’s apparent change of heart, after a Berlin meeting with French President Nicolas Sarkozy, was a huge relief after weeks of growing anxiety that her hardline stand on making the private sector pay some of the cost could lead to disaster in Athens and then the wider eurozone.
The hope now is that a reshuffled government in Athens will survive a vote of confidence and then pass the latest austerity package needed to get the next tranche of EU-IMF funding and pave the way for a new rescue deal.
In London, the benchmark FTSE 100 index of top shares closed up 0.28 percent at 5,714.94 points. In Frankfurt, the DAX gained 0.76 per cent to 7,164.05 points and in Paris the CAC 40 rose 0.83 per cent to 3,823.74 points.
Most other European markets showed similar gains while Madrid put on more than two per cent.
Dealers noted that Mrs Merkel and Mr Sarkozy agreed private investors should be involved in the new Greek package on a voluntary basis, a key modification for the chancellor who was insisting that they stump up fresh funding.
“It seems that Germany is converging towards the European Central Bank’s view that there can be no default or credit event in Greece and a long-term solution to Greece’s fiscal woes needs to be found quickly,” said Forex.com research director Kathleen Brooks.
Ms Merkel and Mr Sarkozy called for a new rescue package to be worked out as quickly as possible ahead of an EU summit next week.
“We need a solution as soon as possible so that we have clarity ... We have been talking about this for the whole of May and June, discussing the same issues again and again without resolving them,” Mrs Merkel said.
Brooks said such remarks “reassured the market after a week of turmoil. Now that it appears that Europe is speaking in one voice, the chance of a disorderly default in Athens has been greatly reduced.”
In Paris, Aurelien Hotton at Swiss Life Gestion Privee said stocks recovered, led by the banks which have suffered badly in all the speculation about a default given their possible losses on their Greek bond holdings. In New York, stocks were firmer after a sharp opening bounce as investors there welcomed the more positive tone out of Europe.
The blue-chip Dow Jones Industrial Average was up 0.62 per cent at around 1610 GMT while the tech-heavy Nasdaq Composite added 0.28 per cent.
The remarks by Mrs Merkel and Mr Sarkozy “created a ray of hope that Greece will be able to avoid a debt default that could have systemic implications for European banks,” said Patrick O’Hare of Briefing.com.