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Euro zone pact fails to restore confidence

posted 12 Dec 2011, 07:37 by Mpelembe   [ updated 12 Dec 2011, 07:37 ]
European financial markets have delivered a firm thumbs down to a landmark European Union deal to deepen economic integration.

EUROPE-MARKETS - Markets get back to work after one of the most turbulent weeks in the history of the European Union.

Friday's groundbreaking deal to deepen economic integration within the bloc was designed to bring stability.

But markets fell in morning trade, the German DAX shedding more than 1.5 percent.

In Frankfurt Robert Halver from Baader bank says the trading environment up until Christmas Day looks tough.


"The market reaction has not been that bad but I guess the most important factor is whether the rating agencies will put the thumb down regarding the results of the EU summit. It will be a difficult environment the next couple of weeks."

The pan-European FTSEurofirst300 also fell sharply at the start of trade.

It regained some ground later in the morning, coinciding with the sale of Italian government debt.

One year bonds attracted a yield of 5.95 percent, down from 6.08 at the last sale, but ten years bonds jumped 22 basis points to 6.6 percent.

Spanish 10-year bond yields also rose slightly to 5.95 percent.

Although Britain wanted no part of it, Germany and France have pushed through a reform to the European Union's treaty making euro zone countries adhere to much stricter fiscal rules.

Justin Uruqart Stewart of Seven Investment Manangement questions whether that will be enough.


"One of the first issues that has to be addressed is will all of those current members of the euro zone in reality be able to come along with them and obey the rules. And the markets looking at it are saying 'actually, probably not.'

Adding to the gloomy sentiment, a warning from credit ratings agency Moody's which said it could downgrade some European Union countries in the coming months.

Moody's said the crisis remains at a "critical and volatile" stage, its warning mirroring that of fellow ratings agency Standard and Poor's last week.

Andrew Potter, Reuters