EU summit may not calm investors for long

Mon Dec 12, 2011 7:17am EST
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By Annika Breidthardt

BERLIN (Reuters) - Last week's EU summit went a long way towards forging the closer economic ties needed to prevent future debt crises but markets are likely to judge it as too little and too late to solve the current one.

As on previous occasions, the measures are unlikely to calm investors for long.

European Union (EU) leaders ended the summit with a historic agreement to draft a new treaty for deeper integration in the euro zone, but analysts and policymakers remained skeptical such long-term steps could solve the crisis that has shaken Europe for two years.

While German Chancellor Angela Merkel said she didn't expect leaders would meet again before Christmas, a senior EU official said he thought market pressure would compel them to meet in a room together again sooner rather than later.

The euro slipped early on Monday, safe haven German government bond futures rose and European stock futures were pointing lower, though none of the moves were dramatic.

"The moves by the euro zone policymakers are not a damp squib but neither are they the big bazooka hoped for that could really ease market tension for an extended period," said Howard Archer, economist at IHS Global Insight.

The euro slipped in Asia on Monday as investors took the view that the EU plan was not the decisive move needed to resolve the debt crisis.

EU leaders agreed to lend up to 200 billion euros ($267 billion) to the International Monetary Fund to help it aid euro zone strugglers, and to bring forward the permanent rescue fund European Stability Mechanism (ESM) by a year to mid-2012.   Continued...