Markets rally on Greek aid resolution

Share prices in Athens rose 3.5 per cent, their biggest one-day gain since early January. Bank stocks jumped more than 6 per cent after heavy losses last week.

“The solid form given to the Greek aid package, whether they use it or not, has given the market a much-needed psychological boost,” said Mike Berg, strategist at 4Cast consultancy.
The euro also benefited. The currency enjoyed its best single-day gain since August last year, adding 1.43 per cent before easing to $1.3583, up 0.7 per cent by mid-afternoon in New York. Two-year Greek borrowing costs fell 0.78 percentage points to 6.11 per cent, having dropped as low as 5.42 per cent in early trade.
The Greek government is set on Tuesday to borrow €1.2bn in six and 12-month loans to repay existing debts. The sale is expected to go smoothly.
However, former International Monetary Fund officials said there was uncertainty over how the eurozone would work with the IMF, which would be involved in a rescue.

Morris Goldstein, a former deputy director of the fund’s research department, said the lines of responsibility in the emerging deal were unclear.
Mr Goldstein said both groups might want to take the lead should Greece ask for aid.
The fund, he said, would insist on playing a leading role in setting the conditions for lending. These were likely to involve tough fiscal targets, more transparency on public finance data and possibly some structural reform to hold down wages and reduce costly pension rights.
“This has the makings of a strange dog’s breakfast,” said Mr Goldstein. “If a regional grouping can set IMF conditionality, what is the point of the fund anyway? This could create a very dangerous precedent.”
The rescue package agreed by eurozone members at the weekend would set interest rates of about 5 per cent – higher than eurozone countries’ own borrowing costs, but lower than the levels available to Greece in the markets.
Analysts said the details of the rescue plan had left questions unanswered, including whether it implied that eurozone members were now liable for each others’ debts.
The ongoing struggles of the eurozone to reach a deal have also left a “sour taste” in investors’ mouths, said Simon Derrick, head of currency strategy at Bank of New York Mellon.