EUROPEAN MARKETS HAVE reacted positively to news of an agreement on the new EU fiscal compact which was agreed by the majority of member states in Brussels last night.

Leaders agreed on a treaty which intends to enshrine fiscal discipline by enforcing penalties on states with high deficits and require members to enact laws that limit they amount of budget debt they can run up.

The treaty – signed by 25 of the 27 EU member states including Ireland – is intended to shore up confidence in the single currency. In the US the dollar fell against the euro before markets closed last night.

This morning in London the FTSE 100 of leading shares is up 0.66 per cent. In France the Cac 40 is up by over 1 per cent and in Germany the Dax index is up by nearly 1 per cent at the time of writing. Asian markets also closed strongly overnight.

“Everyone is watching the European summit and how the Greek debt crisis comes out,” said Jackson Wong at Tanrich Securities in Hong Kong. “The general atmosphere is to play a wait-and-see game.”

However there are still concerns over Greece where a deal on the haircut it will impose on creditors is still yet to be agreed. While in Portugal itsi increasing cost of borrowing is leading to concerns that it, like Greece, will need a second bailout.

Portugal may become the next country “where default is a real possibility,” said Martin Hennecke of Tyche Group in Hong Kong.

“The euro zone crisis is far from being fixed at all. Italy and Spain are effectively bankrupt as well,” Hennecke said. “For Asia, that means there is huge uncertainty in terms of export markets.”

- additional reporting from AP

Opposition parties disappointed in EU treaty

EU leaders strike final agreement on new treaty