The German chancellor, Angela Merkel, said she was confident that the Bundestag would vote through the Greek rescue package. Photograph: John Macdougall/AFP/Getty ImagesA rally on European stock markets evaporated on Friday night as investors began to voice concerns about whether the eurozone rescue plan for Greece would be enough to stem the currency bloc's debt crisis.
One leading investment strategist described the new deal as "less sticking plaster and more of a proper bandage", but warned the underlying problems in the Greek economy had not been addressed. Another said the voluntary 21% "haircut" agreed by the banks was less than a third of what was required.
The credit ratings agency Fitch added to worries over the deal after it declared Greece would be in temporary default as the result of the €109bn (?96bn) bailout. The move is likely to be matched by rival ratings agencies.
The FTSE 100 finished up just 35 points at 5935, adding to small gains on the main French and German exchanges following a volatile day that saw most shares sink before a moderate recovery. Markets had initially cheered the deal and pushed up US stock prices overnight.
British and German government bonds, considered a safe haven, ended higher as investors started to have doubts about the scheme, which involves offering Greece, Ireland and Portugal longer to pay off their loans and a cut in interest payments.
Greece was also offered a relatively small one-off reduction in the value of its outstanding loans that will reduce its debt-to-GDP ratio from the 160% it was expected to reach before 2015.
French prime minister Francois Fillon said the deal guaranteed there would be no default by member states in the 17-nation bloc. However, comments by German banking bosses that the deal would need to be examined added to the air of uncertainty.
Germany's BdB association of private banks said that while an agreement was "an important step," the industry needed more information on its involvement.
The Institute of International Finance, which led talks for private investors, said 90% of creditors will sign up. Deutsche Bank, HSBC, BNP Paribas, Allianz and Axa are among the firms ready to support it.
Holders of Greek debt who are not on the institute's list of supportive firms include Royal Bank of Scotland, Italy's Unicredit and the French Credit Agricole banking group.
The offer is voluntary, raising the possibility that some investors, such as hedge funds, will not participate and wait to be repaid at the full price.
Standard Life said the deal was a positive move but it would continue to shun European shares and sovereign bonds, leaving it underweight in both.
Richard Batty, the fund manager's global investment strategist, said the bailout package still failed to tackle the economic situation in Greece and other debt-laden countries: "This programme is less sticking plaster and more of a proper bandage but that still doesn't deal with the underlying issues. You have to make these ex-growth economies like Greece and Italy more productive and able to compete in global markets. Without higher productivity and growth it will prove difficult to pay down debts, even with the improved deal."
Gary Jenkins, head of fixed income research at Evolution, argued the compromise to limit private sector bank losses to 21% was not enough to save Greece from years of austerity: "We have long thought that the most likely outcome for Greek bondholders would be that they would take a small haircut first followed by a larger one at a later date.
"To give Greece a fighting chance they probably need a writedown close to 65%," he said.
Analysts also warned that the need to put the package to a vote in the parliaments of each eurozone member state meant the deal could yet be derailed.
"Some of the euphoria that was in the market as the result of [Thursday's] events has eased off a little bit," said Eric Wand, strategist at Lloyds Corporate Markets.
"Some of the measures that were announced have still got to be passed by national parliaments – particularly with regard to the EFSF [European Financial Stability Facility]. And there may be some concerns about the sustainability of the debt situation given the easing growth backdrop," Wand added.
Germany's Angela Merkel said she was confident the Bundestag would vote through the package after she secured private sector involvement against French fears it would trigger a mass withdrawal of private funds across the eurozone.
France's BNP Paribas is set to take the biggest hit of around €950m, as the largest holder of Greek government debt outside the country.
Fillon said France's debt would increase by €15bn by 2014 taking into account the cost of providing a guarantee. The increase in debt raises the risk that France may overshoot the government's debt targets, which foresee a peak at 87% of GDP in 2012.
Ireland said the reduction in interest rates and extension on much of its lending could save €1bn a year in costs. Prime minister Enda Kenny thanked UK chancellor of the exchequer George Osborne for matching the eurozone plan with a reduction to 3.5% on the interest payments of a separate loan Britain offered last year.
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