Europe agrees on debt deal

The euro area inched a little closer to a solution to its debt crisis on Friday. The New York Times reports:

European leaders, meeting until the early hours of Friday, agreed to sign an intergovernmental treaty that would require them to enforce stricter fiscal and financial discipline in their future budgets. But efforts to get unanimity among the 27 members of the European Union, as desired by Germany, failed as Britain refused to go along...

The European Council president, Herman Van Rompuy, said that in addition, the leaders agreed to provide an additional 200 billion euros to the International Monetary Fund to help increase a “firewall” of money in European bailout funds to help cover Italy and Spain. He also said a permanent 500 billion euro European Stability Mechanism would be put into effect a year early, by July 2012, and for a year, would run alongside the existing and temporary 440 billion euro European Financial Stability Facility, thus also increasing funds for the firewall.

Markets mostly responded positively to the news. The S&P 500 rose 1.7 percent on Friday while the STOXX Europe 600 rose 1.2 percent. US and German bond yields rose while most other European bond yields fell.

Also helping markets was a report showing that the recovery in US consumer confidence has continued this month. The preliminary Thomson Reuters/University of Michigan consumer sentiment index climbed for a fourth straight month to 67.7 in December from 64.1 in November. Another economic report showed that the US trade deficit narrowed in October on declines in both exports and imports.