Despite a positive market reaction to the EU summit, underlying issues remain and are likely to lead to a re-emergence of tensions, QNB Group said in a report. This, it said, has prompted European Union leaders to take more focused and concrete action.The eurozone crisis continued to unnerve investors in June in the run up to an EU leaders’ summit at the end of the month. During the month, anti-austerity parties threatened to derail Greece’s bailout programme, but elections returned a majority for the pro-bailout parties. Following these elections, the focus of concerns shifted to Spain and Italy.After months of speculation, the Spanish government was finally forced to call for a bailout for its banks, which are suffering from large exposure to a worsening real estate market. These stresses and a generally worsening outlook for the European economy, led to concern about Italian sovereign debt, driving up bond yields. During June, the yield on Spanish and Italian sovereign debt reached levels that are generally regarded as unsustainable in the long term, breaching the 6% mark in Italy and 7% in Spain. Prior to the summit, European leaders were able to pledge up to €100bn for the bailout of Spanish banks, considerably more than the initial estimated requirements of €40bn. However, this was insufficient to allay market concerns, according to QNB Group, as the money would initially be lent to the banks via the Spanish government, leading to an increase in public debt. Worries about higher debt levels drove up sovereign bond yields. Also prior to the EU summit, European leaders appeared to be divided on how to tackle rising bond yields for Spain and Italy. However, in fact, leaders at the EU summit did succeed in reaching an agreement on a short-term fix. Spain and Italy were able to force action by refusing to discuss anything else until crisis measures were agreed.Consequently, at the summit it was agreed that Spanish banks could be recapitalised directly, reducing projected government debt levels by 6%-10% of GDP. It was also agreed that the European Stability Mechanism (ESM) could purchase sovereign bonds without an accompanying monitoring programme. This cleared the way for the Italian government to request assistance in its bond market.The surprise positive result led to the largest daily drop in Spanish and Italian ten-year bond yields this year, from 6.95% to 6.33% for Spain and from 6.20% to 5.84% for Italy. It wasn’t just bond markets that reacted positively, the Euro Stoxx 50, an index of leading European companies, gained 4.96% for the day and the Euro rallied 1.77% against the dollar to €1: $1.2662, also the largest daily gains this year.Despite the positive reception in financial markets, it is likely that tensions will re-emerge in the near future. While the summit was successful in making some key decisions, the agreement did not outline the details of implementation, making it potentially problematic with potential treaty changes and parliamentary approvals. More details should be revealed around a meeting of EU finance ministers on Monday.