Europe's financial markets modestly welcomed the latest euro-zone agreement early Friday on a new financing package for Greece and measures to prevent contagion from spreading.
It came after euro-zone leaders agreed on Thursday night on a new €109 billion ($157 billion) bailout for Greece and new steps to prevent its debt crisis from spreading across the continent. The plan is expected to trigger the first debt default by a nation using the common currency, according to Wall Street Journal.
Greek, Spanish and Italian bonds rose after officials drew concessions from Germany, the European Central Bank and investors for a twin-track strategy to support Greece and ensure its woes don't spread. The summit is the latest in a running- battle to resolve the crisis amid calls this week for tougher action from U.S. President Barack Obama and the International Monetary Fund.
"These measures are welcome because they create the best possible conditions for Greece and other peripheral countries to put their houses in order and hence limit the risk of contagion," said Marco Valli, chief euro-area economist at UniCredit SpA in Milan. "Still, the market will continue to price some probability that troubled countries will not be up to the challenge", informs Bloomberg.
Europe's banks held 98 billion euros of Greek debt at the end of last year, with two-thirds of that in domestic hands. They will be recapitalized under the rescue plan, with about 15 billion euros likely to be pumped in, on top of 10 billion already earmarked for them.
About four-fifths of debt is typically held in banking books that may now face a haircut, indicating non-Greek banks face a loss of 5.4 billion euros.
BNP Paribas has the biggest holding outside Greece, with 4.5 billion euros of bonds in its banking book, according to data released last week as part of an industry health check. A 21 percent loss on that would be 945 million euros.
Dexia held 3.5 billion euros and Cyprus's Marfin CPBC.CY held 3.4 billion, indicating a hit to each of over 700 million euros. Commerzbank held 3 billion euros and Societe Generale (SOGN.PA) held 2.4 billion, so they face haircuts of 630 million and 500 million euros respectively. ($1 = 0.695 Euros), says Reuters.
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