Footsie hits six-month high after Greeks agree new cuts

Prime minister Lucas Papademos steered through the latest austerity measures in Athens as protestors ran amok, burning buildings in the Greek capital and fighting running battles with police. More than 40 deputies resigned from his coalition.

The FTSE 100 added 0.9%, or 52.87 points, to 5905.26 - the highest level for the blue-chip benchmark since July 26 - as European bourses gained ground. The euro added more than half a cent against the dollar to $1.3256 and gained ground against sterling. Borrowing costs for euro-strugglers Spain and Italy also fell.

The measures agreed - including 150,000 public sector job losses, 300 million in pension cuts and a 22% reduction in the minimum wage, have to be signed off by the Eurogroup - the 17 finance ministers of the single currency bloc - on Wednesday.

Chris Scicluna, head of economic research at Daiwa Capital Markets Europe, said: "It would be absurd for the Eurogroup to turn it down now after the austerity measures moved through the Greek parliament."

ING Bank economist Paolo Pizzoli added that Greece's problems are far from over even after the bailout: "The big question mark relates to when Greece will be able to return to positive economic growth. We reckon this will be unlikely to materialize before the second half of 2013."

...and taxpayers dig deep again

Although exact amounts are yet to be agreed, the bulk of the 130 billion for Greece will come from the European Financial Stability Facility (EFSF) - effectively putting European taxpayers on the hook again.

This fund is backed by 726 billion in guarantees from the EU member states - excluding of course Greece, Ireland and Portugal, which have already been bailed out. The EFSF in turn sells bonds to international investors to raise the funds as well as pay interest to the buyers of the bonds. The IMF will also contribute to the package but the final amounts will have to be signed off by the management bond.

The situation is fluid as negotiations continue in Athens and Brussels but as of last week public funds were due to contribute 30 billion to the 130 billion in private-sector write-offs on Greek debt, 97.5 billion for Greece's fiscal needs and 36.5 billion to recapitalise the banks. The figures are boosted by 37 billion left from the first bailout in May 2010.