EUROPE - Investors have both welcomed and scoffed at measures taken by euro-zone leaders to tackle the Greek debt problem, as details of a further bailout package for Greece were announced - including the level of involvement facing private investors.

As part of the new agreement, private sector lenders and pension funds will be asked to contribute €37bn to the new €109bn package, with this being achieved through a haircut on Greek bonds. 

One commentator warned that, until the financial crisis within the single currency was resolved, European financials would remain "dangerous - even toxic" as an asset class.

However, some commentators welcome the proactive approach taken by the French and German governments, following more than a year of what Ted Scott, director of global strategy at F&C Investments, called "the sticking plaster approach".

While Scott accepted that the new proposals - which include additional powers for the European Finance and Stability Fund (EFSF), broadening its remit to be a European version of the IMF - were not going to act as a silver bullet, he viewed them as a significant step forward.

"For the first time since the crisis erupted in the spring of 2010, the authorities have been proactive and, at least partially, addressed the issue of solvency and not just liquidity-driven financing needs," he said.

Fidelity Investments praised the political resolve demonstrated by the leaders, highlighting that the agreement involved significant compromise on solutions that were previously unthinkable, according to David Simner, a euro bond portfolio manager at the company.

He highlighted that markets had reacted well to the news, with 10-year Italian government bonds seeing yields drop by 0.75 percentage points compared with the beginning of the week.

Simner added that while several details were still outstanding - such as the size the €440bn EFSF would need to become to provide the new services, including the ability to buy bonds on the secondary market and offer new lines of credit as a pre-emptive measure - it was the first step toward future write-downs.

"The Rubicon has been crossed in that write-downs of sovereign bonds have been permitted, and, as such, extra write-downs will be less difficult in future," he said.

However, while Clive Lennox of Clear Currency highlighted that this was the time for investors selling euros, as well as those buying US dollars, to become active, he questioned the implementation of the proposals.

"We must remember that what the summit has put on the table is but just a plan," he said. "This plan has to be delivered and executed - what odds would you put on that happening?"

Anatole Kaletsky, chief economist at GaveKal Research, shared Lennox's scepticism, noting that, as with previous bailouts, this one raised a number of questions that were left unanswered.

He questioned whether the estimated 21% haircut on Greek bonds would be sufficient to guarantee the country's solvency and stressed that if Greece were offered such treatment, why should fellow bailout recipients Portugal and Ireland not benefit from the same terms.

"Since all these questions remain unanswered, only one thing that can be said with certainty about this latest euro bailout - it will not be the last," he said.

However, Ireland may not require a haircut, after Taoiseach Enda Kenny and minister for finance Michael Noonan were able to deliver on their election promise to secure an interest rate cut of 2 percentage points, lowering the charges on its loans from the EU and the IMF to 3.8% per annum.

Estimates expect this to reduce the burden on Ireland's finances by as much as €800m a year, ahead of the country's second austerity budget in December.

Kaletsky said that, despite the results of achieved, European financial institutions would still be viewed as a dangerous asset class.

"Whatever you may think about the long-term probabilities of the euro's breakup or survival, European financials will remain an extremely dangerous - even toxic - asset class until the ultimate resolution to the euro crisis is completely clarified and the required institutional and legislative changes are achieved," he said.

He added that, as a result of these problems, banks and insurance companies will trade at a significant discount to their counterparts in the US, even if they are not heavily exposed to unstable euro-zone debt.

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