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Markets rally as EU leaders unveil debt crisis 'bazooka'

Stock markets around the world rebounded from recent losses after EU leaders unveiled a three-prong plan to tackle the eurozone debt crisis.



Asian stock markets led the rally, with Japan's Nikkei 225 index rising 1.6pc to 8,891.93 and South Korea's Kospi adding 1.4pc to 1,921.21.



Hong Kong's Hang Seng gained 1.7pc to 19,399.03. Benchmarks in Taiwan, Singapore, mainland China, Indonesia and the Philippines also rose.



Meanwhile, oil prices rose to near $92 a barrel, while the euro gained strongly.



Officials in Brussels said an accord had been reached with banks on a 50% write-off of Greek debt, and they also approved a complex mechanism to boost the eurozone's main bailout fund to 1 trillion euro (£880 billion).



It means that, coupled with an earlier decision to recapitalise vulnerable banks, the summit has delivered on the package it promised.



The FTSE 100 Index was 2% higher on news of the agreement, while stocks in France, Germany and across Asia also opened on the up.



After the summit, EU president Herman Van Rompuy said the deal would reduce Greece's debt to 120% of its GDP in 2020. He added that the eurozone and International Monetary Fund would give the country another 100 billion euro (£87 billion).



The 10 hours of talks began with a meeting of all 27 leaders, including Prime Minister David Cameron. After 90 meetings they had endorsed the first part of the deal - boosting the liquidity of the most exposed banks in Europe.



The recapitalisation scheme does not involve UK banks, but forces many European banks to increase their reserves by more than 100 billion euro. The money may have to come from national coffers - effectively taxpayers - if the banks cannot raise the obligatory extra money through private investors by a deadline of next July.



Then the 17 eurozone leaders settled in for tougher negotiations, finally convincing the banks to take a 50% "hit" on their Greek loans repayments.



The third element, increasing a 440 billion euro (£383 billion) bailout fund, proved toughest, and the result is most open to attack from critics, who may also point out that a Greek debt write-off of 60% was considered by many to be the minimum necessary.



French president Nicolas Sarkozy said the agreement would "give a credible and ambitious and overall response to the Greek crisis".





The text of summit conclusions refers to the bailout fund being leveraged "several fold" - leaving plenty of scope for jittery markets to question the value of its increased firepower in tackling existing and future economic problems in the single currency area.





Having named yesterday as the deadline for final decisions on a rescue package - complete with detailed figures - the 17 leaders went into extra time for four hours to deliver results.





"The leaders were determined that there should be at least one firm figure in the outcome" said one insider. "That is the 50pc write-down on Greek debt to ease the Greek burden."





Reluctant banks had offered 40pc, but German chancellor Angela Merkel and Mr Sarkozy insisted that the sector had got off relatively lightly in the crisis so far, with taxpayers bearing the brunt of bailouts.





Now, they said, banks should be prepared to forgo a significant level of Greek repayments to help ease the crisis.





The 10 hours of talks began with a meeting of all 27 leaders, including British Prime Minister David Cameron. After 90 meetings they had endorsed the first part of the deal - boosting the liquidity of the most exposed banks in Europe.





The recapitalisation scheme does not involve UK banks, but forces many European banks to increase their reserves by more than €100 billion.





The money may have to come from national coffers - effectively taxpayers - if the banks cannot raise the obligatory extra money through private investors by a deadline of next July.





Mr Cameron left that part of the talks saying "some good progress" had been made.





Then the 17 eurozone leaders settled in for tougher negotiations, finally convincing the banks to take a 50pc "hit" on their Greek loans repayments.





The third element, increasing a €440bn bailout fund, proved toughest, and the result is most open to attack from critics, who may also point out that a Greek debt write-off of 60pc was considered by many to be the minimum necessary.





After the summit, European Commission president Jose Manuel Barroso said the EU had delivered "a comprehensive response to the sovereign debt crisis".





He said the summit deal restored confidence in the banking sector, with final conclusions making clear that "banks should be subject to constraints regarding the distribution of dividends and bonus payments".





Mr Barroso insisted: "Increased responsibility and a fair contribution of the financial sector is central to our approach.





"These are exceptional measures for exceptional times.





"Europe must never again find itself in this situation. That is why we must further improve our economic governance, namely in the euro area: the euro summit paves the way to a further strengthening of co-ordination and surveillance (of eurozone economies).





"The package we have agreed is a comprehensive package that confirms that Europe will do what it takes to safeguard financial stability. "





He said resolving the crisis was "a marathon, not a sprint" and technical work to finalise parts of the package would be completed in the next few weeks.





The commission would also be making more proposals "for a community way out of this crisis."





He said that at the G20 summit of world leaders next week in Cannes, Europe would show its partners what it could do: "an agreement to conclude measures to restore confidence in the European banking sector; ensuring the adequate firewalls; accelerating our ambitious agenda for growth; and further strengthening economic surveillance and co-ordination".





It amounted to a readiness "to complete our monetary union with a true economic union," Mr Barroso added.



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