NEW YORK Though they did not deliver the master plan many were hoping for, European officials gave financial markets something to keep their hopes up with an agreement to boost the firepower of a euro zone rescue fund.
The precise details will have to wait until November. But a deal to ramp up the bailout fund by around fourfold was enough to lift U.S. stocks and push U.S. Treasuries lower.
"While there are no specific details, at least this appears to be (moving) in the right direction and hopefully is also a sign of unity among the EU," said Ravi Bharadwaj, market analyst at Travelex Global Payments in Washington.
He said the muted impact in the euro reflects that "a lot of people were expecting more clarity today", for example on how to restructure Greece's outstanding government debt.
Talks in the run-up to Wednesday's summit had involved having private creditors take up to 50 percent "haircuts" on their Greek bond holdings. Earlier this year, the proposal called for about 20 percent.
"This is a tightrope. I do see a positive scenario, but nothing is set in stone," said Jurgen Odenius, principal of international economic and investment strategy at Prudential Fixed Income in Newark, N.J. "There is still the risk that the voluntary debt restructuring would not happen and Greece could default."
BIGGER BAILOUT FUND A FIRST STEP
That national leaders in Europe agreed to leverage up the European Financial Stability Fund at all, however, was at least an encouraging sign. Getting there took time. At one point earlier this year, European officials gave U.S. Treasury Secretary Timothy Geithner a cool response when he pushed for boosting the fund.
"They have continuously kicked this can down the road and now we are at a point where everybody's back is against the wall - you have to do something and it is encouraging that you are at least getting European policy makers to agree in principle on what needs to happen," said Joseph Tanious, market strategist at J.P. Morgan Funds in New York.
"That said, how you actually execute on this plan and agree on all the details is like herding cats."
A draft summit statement obtained by Reuters on Wednesday indicated policymakers were considering creating a special purpose vehicle to attract sovereign and private investment from the likes of the International Monetary Fund, China and others.
Another option involved using the rescue fund to issue partial guarantees on purchases of euro zone government debt.
EU sources said the 440 billion fund, set up last year, would have about 250-275 billion euros available after amounts are set aside for aid to Greece, Ireland and Portugal and for recapitalising the region's banks.
That amount would be leveraged around four times, arriving at a headline figure of 1.0 trillion.
"The leveraged EFSF seems to be in the 1 trillion euro area, which is a starting point. If it goes higher, the Treasuries market may react to that," said Kevin Flanagan, chief fixed income strategist at Morgan Stanley Smith Barney.
LIVING BY HEADLINES
For markets, living from euro zone summit to euro zone summit has become de rigueur in recent months, with each new development taken as a reason for cautious optimism or renewed despair.
"We are reacting to every headline these days," said Kim Rupert, managing director of fixed income analysis at Action Economics in San Francisco.
But ultimately, Europe will have to divulge the specific details to convince markets that they are finally getting a handle on a debt crisis that flared up in late 2009 and has required emergency rescues for Greece, Ireland and Portugal and ramped up pressure on Spain, Italy and, more recently, France.
"The bottom line is that these headlines in themselves are not game changers. It's not providing any new ground for the market," Flanagan said. "Ultimately the market wants to see concrete details of the plan."
As is often the case, that's where the devil may dwell.
Odenius said even a larger bailout fund could bring new problems, particularly whether the backing of bigger euro zone countries would put their own top credit ratings at risk.
Added Rupert, "even when we get the details, the problems are not going to be fixed any time soon. It is a long road ahead."
(Reporting by Reuters bureaux in Brussels and New York; writing by Steven C. Johnson)