Hollande, markets welcome eurozone crisis deal but French debt rises

French President François Hollande hailed the “happy effects” overnight European Union (EU) summit deal on the eurozone debt crisis as world stock markets rocketed and interest rates on Spanish and Italian debt went down. The surprise agreement will see banks recapitalised directly and funds for growth injected into the eurozone economy.

Reuters/Francois Lenoir

While Hollande expressed delight and markets rallied, German Chancellor Angela Merkel insisted that she had remained faithful to her principles in dropping opposition to the bank arrangement.

It will see money from the eurozone’s 500-billion-euro bailout fund leant directly to banks rather than passing through national budgets, although not before a Europe-wide supervisory body is set up, probably by the end of the year.

Lending the money to governments so that they would lend it to the banks meant that the debt was on the government’s books, leading investors to demand higher interest rates from their loans to affected states.

Long-term interest rates on Italy’s and Spain’s debt fell significantly Thursday.

Paris’s Cac-40 shares index leapt 2.76 per cent on Friday morning, with Frankfurt and the City of London also rising, while shares in banks rallied, France’s BNP Paribas going up 6.26 per cent and Spain’s BBVA 7.77 per cent.

EU leaders also agreed that governments that are following budget rules would be liable for bailouts that would not be subject to Greek-style stringent conditions and to pump 120

billion euros into the eurozone in an effort to boost growth, Hollande’s key European demand since he has been elected.

The capital of the European Central Bank will be increased by 10 billion euros, raising its lending capacity to 60 billion euros.

Another 55 billion euros will be taken from unused EU funds to help small and medium-sized businesses and youth employment schemes.

There was bad news for France on Friday with the announcement that its debt grew by 72.4 billion euros in the first quarter of 2012, 89.3 per cent of GDP, according to the Insee statistics institute.

There has been no end to Merkel's opposition to eurobonds, however, although there is agreement on progress towards more federalism. over 10 years.