European leaders' rescue plan, which includes help for Greece, announced Thursday has a number of broadly positive steps, according to some money managers, but it's too early to say what lasting effect the plan will have in addressing the eurozone's debt crisis.
“Clearly, the markets around the world are viewing it as positive. It would be foolish to say there wasn't some good in this agreement,” said Christopher Probyn, managing director and chief economist at State Street Global Advisors.
A planned €106 billion ($147 billion) bank recapitalization and a guarantee for bank liabilities are perhaps the agreement's highlights, Mr. Probyn said. “By providing guarantees on bank liabilities, that should encourage (short-term) lending to the banks,” he said.
A four- to five-times leveraging of the eurozone's bailout fund, also part of the agreement, is expected to raise the fund's capacity to an estimated €1 trillion. Europe might look to sovereign wealth funds outside the region to help raise the fund's capacity, sources said.
The agreement “has done enough to take the possibility of financial meltdown in Europe off the table. … We are not going to have a financial car crash, and against that backdrop, the rally in risk assets makes sense,” Mark Burgess, chief investment officer at Threadneedle Asset Management, said in a prepared statement.
Although the deal lacks detail, “the market was relieved to see a coordinated action,” said Virginie Maisonneuve, head of global equities at Schroder Investment Management. “It was really urgent to have something soon.”
However, some managers say the eurozone debt agreement raises as many questions as it answers.
“We still feel that some opportunities were missed in terms of the ‘shock-and-awe' nature of the package, and we continue to ask ourselves whether the eurozone has once again just bought itself more time,” Mike Turner, head of global strategy and asset allocation at Aberdeen Asset Managers, said in a prepared statement.
And in a paper issued Thursday, Stuart Thomson, chief economist at Ignis Asset Management, was even more dour, calling the agreement a “massive confidence trick.” He said all elements of the agreement were “inadequate,” and that it “has kicked the can down the street … We have no doubt that (further meetings) will take place through the first half of 2012” to solve the crisis.