The long-awaited “Eurogroup” rescue package for Greece was finally agreed to in Brussels this morning and European equity markets promptly headed…lower (?!) in the wake of the news. The EU/ECB/IMF trio is into the Greek rescue by almost a half a trillion dollars at this point, and the latest life-preserver contains what is being labeled as a ‘significant contribution’ by the IMF. This was another, fairly typical display of “selling the news” and it prompted one Commerzbank strategist to wax poetic and remind that “sometimes it’s better to travel than to arrive.” Others opined that the Eurogroup simply kicked the proverbial tin can down the road with this operation and that Greece’s odds of going belly-up debt-wise remain as good as ever.
In a powerful Wall Street Journal Agenda piece, author Simon Nixon sums up the current but mainly future EU situation by cautioning that “The euro zone needs to acknowledge that there can be no solution to the euro crisis until the fate of its banking system is separated from that of its sovereigns. That will require the creation of pan-European deposit insurance and ultimately euro bonds to provide banks with an alternative risk-free asset. Unless this is what euro zone finance ministers have in mind as they sit down on Monday, they should have no business signing the deal. To go ahead with a flawed Greek bailout without a plan to accelerate euro zone integration and create a functional monetary union would be an act of calculated cynicism that would simply deepen Greek — and European — agony.”
For weeks on end now, the markets witnessed the ebb and flow of optimism and related risk-taking or avoidance in connection with news about Greece’s rescue Part Two. However, there was also a pattern of stocks and the euro (along with commodities) initially rising on positive news related to this deadline or that, and of their retracing their advances when actual deadlines came and went. This morning as well, the euro first advanced almost half a percent against the US dollar, only to ease back after doubts arose as to the long-term efficacy of the latest monetary package that was sent to Athens.
Now that the red wax seal is drying on the €130 billion package and the many strings that are attached to it, the markets can focus on the remaining troublesome items — banking sector problems and Greece’s own inability to avoid coming back to knock on the EU’s door for more assistance, at a later date. There appears to be little doubt that in order for the country to bring debt down to 120% of GDP, such further help will be necessary. As things stand right now, if Greece is lucky, that ratio might get down to 129% by…2020 or so.
If you are to take something away from the on-going Greek and European debt saga, you (some would advise us) might wish to take a page from a place not too distant from Europe. We are talking about Iceland and how that country came back from a virtual point of no return. In the end, Iceland has not been reduced to having to sell Icelandic honey in order to survive and turn away from an economic contraction that neared 7% once not that long ago.
Drastic — some say “unthinkable” — measures? You bet. Placing the needs of the population ahead of the markets and/or the banks? You betcha. “Bad” bankers going to “solitary confinement?” Very likely. A credit repair job well-worth it? Affirmative. Iceland a “failed Socialist utopia?” Not by a very, very long shot. Ironically, practically every lamenter of the “Obama Regime” would like to send more than a handful of US “banksters” up the proverbial justice “river” if they had their way…