Australian financial markets yesterday gave a positive reception to the deal over European finances, with bank shares and the Australian dollar both up. Long-term debt pricing indicators, though, were slightly weaker.The deal is important to Australian banks because market acceptance could help re-start activity in almost deserted long-term bank funding markets.And, of course, a full-blown crisis in European government and business finances could slow world economic growth and particularly the Chinese growth that is fuelling the Australian economy.In the market for Australian bank debt, yesterday's announcement was seen as generally neutral. At least, that's the suggestion from the only real source of information currently available - the thinly traded credit default swaps (CDS) market. At 5pm Sydney time yesterday, ANZ's five-year CDS spreads had widened just slightly, to 167.2 basis points, from 165.0 on Wednesday (see graph), according to information provider Markit. Spreads on Australian banks' five-year debt have tightened sharply in recent days from their October 4 record of over 240 basis points.Westpac shares closed up 2.06 per cent, ANZ shares up 1.90 per cent and CBA shares up 1.79 per cent as the All Ordinaries rallied 2.40 per cent. (The meaning of the share price rises must be unclear. In an trading day disrupted by a major ASX systems failure, NAB also announced a strong profit result, which may have buoyed hopes for profits from other banks.) The Australian dollar rose as high as US105.43 cents, its highest since September 9. Some overseas markets were markedly stronger, with the US Standard & Poor's 500 Index up 3.1 per cent.Under the bank recapitalisation deal reported in yesterday's Banking Day, European banks will need to raise €106 billion of new capital. Greek banks will require €30 billion, Spanish banks €26 billion and Italian banks €15 billion.First reports also emerged yesterday of a plan to provide guarantees on European banks' medium- and long-term debt funding. Such a plan could help boost activity in the bond market and allow banks to lend additional funds in 2012, though details remain vague.The European leaders also reached an in-principle agreement with banks and other private creditors that the Greek Government will pay just half of what it owes them. Again, more work must be done to create a final and binding agreement. But Charles Dallara, the head of the Institute of International Finance, which negotiated on behalf of private creditors, told the Wall Street Journal that participation in the deal was "likely to be very, very high".German Chancellor Angela Merkel, French President Nicolas Sarkozy and International Monetary Fund Managing Director Christine Lagarde had helped find common ground in a post-midnight meeting, Dallara said.Sarkozy also spoke to Chinese president Hu Jintao yesterday, seeking Chinese funding for the expanded European Financial Stability Facility (EFSF), which hopes to eventually have €1 trillion at its disposal.The main risk for the Euro-deal is that the lack of detail and finished agreements will start to again eat away at confidence in the European economies over the