Sarkozy-Merkel deal lifts sentiment

NEW YORK - Reuters

France’s President Nicolas Sarkozy (R) and German Chancellor Angela Merkel enter the Elysee Palace in Paris yesterday before a crucial meeting. REUTERS photo

Confidence that European leaders will come up with a credible plan to lead the region out of its debt crisis at a crucial summit this week lifted world stocks yesterday.

Wall Street opened more than 1 percent higher, while European stocks hit a five-week high.
French President Nicolas Sarkozy and German Chancellor Angela Merkel met in Paris ahead of a key European Union summit later in the week to iron out their differences on how to centralize control of eurozone budgets to resolve the region’s debt crisis.

The two leaders are expected to outline joint proposals for more coercive budget discipline in the euro zone, which they want all 27 EU leaders to approve at Friday’s summit.

An agreement could pave the way for an accelerated implementation of the euro zone’s rescue scheme to help ensure debt-ridden countries have a vehicle to tap for funds while encouraging bondholders to buy eurozone bonds.

“There’s a lot of optimism built in that Europe is finally getting its act together and that the summit will be fruitful,” said Oliver Pursche, president at Gary Goldberg Financial Services in Suffern, New York.

“There’s a lot of pressure for them to deliver and satisfy, but the market wants to go higher, so it will take more than a slight delay in the plans to cause us to turn around significantly.”

The euro hit session highs against the U.S. dollar with traders citing reports that Germany and France have agreed on revisions to a European Union treaty corresponding to budget deficits.

The euro rose as high as $1.34869 on trading platform EBS and was last at $1.34730, up 0.5 percent on the day.

The positive mood drove Italian bond yields further below the worrying 7 percent level at which they are seen as unsustainable and the cost of insuring Italian debt against default also fell.

The poor state of the eurozone’s economy, however, was underlined by business surveys suggesting there will be a steep economic contraction in the current quarter.