The euro rose and stocks jumped on Monday after the European Union and IMF carved out an emergency loan package of up to 750 billion euros (nealry $1 trillion) to keep Greece’s debt crisis from spreading through the euro zone.
In a marathon 11-hour session that lasted till early morning Monday, finance ministers from the 16 Eurozone countries, along with International Monetary Fund (IMF) officials, agreed on a three-year aid plan for Greece.
The European Union Commission will make available 60 billion euros ($75 billion), while countries from the 16-nation Euro zone would provide bilateral backing through 440 billion euros ($570 billion).
The IMF would contribute an additional 250 billion euros ($325 billion).
"The programme adopted by the Greek government is ambitious and realistic. It addresses grave fiscal imbalances, will make the economy more competitive, and lay the basis for job creation and stronger and more sustainable growth," the Eurozone leaders said in a statement late Sunday night.The size of the package and an unexpected pledge by the European Central Bank to buy euro zone bonds if needed gave investors confidence to return to riskier assets, though questions remained about the scheme.
Europe's bank index surged 13 per cent surge — its biggest one-day rise for 20 months.
It clawed back most of last week's 14 per cent slump, when the sector was battered by fears about banks' exposure to a sovereign debt crisis.
Analysts said the rally was understandable given the scale of losses during the even steeper falls of the last month.
"The main reason for the panic last week was the government bond market was grinding to a halt in Europe,” said Arturo de Frias, an analyst for Evolution in London.
"Euro zone policymakers surprised probably even the most optimistic observers by presenting a quick and forceful, unprecedented crisis package," ING said in a note. "It does not solve the fundamental fiscal problems but it gives countries now several years."