Following a deal struck between stable European Union powers Germany and France, Greece is going to get their second bailout so that they have a little more time to see if the European recovery will become robust enough to save them. The foot-dragging by the Germans and the European Central Bank (ECP) finally ended for a while, and a compromise was worked that is better than inertia though it really doesn’t satisfy anymore.
Still, the deal is a significant one in a lot of respects. The “selective (temporary) default” is the first time there has been a default of any kind on Eurobonds, and that is somewhat likely to weaken this market, as well as the sovereign credit rating of neighboring nations, for a long time. The Europeans have also now committed to an open-ended rescue of Greece, meaning taxpayers in the other EU nations could be fronting the Greeks for years. These latest loans will not be the last. The real work starts now for Greece, the worst off of the debt-hobbled "PIIGS nations," as these loans only stave off the inevitable unless something changes to make Greece competitive.
The global markets were expecting that a deal would be reached, as they could not conceive of the Germans presiding over the destruction of the euro zone. But in the current political climate, nothing is certain and the markets have been wavering for weeks. Yesterday, there was a sigh of some relief, and the response was robust. Now global markets are waiting for the other shoe to drop. Will U.S. lawmakers pull the fat out of the fire at the last minute and make a deal on the critical debt ceiling issue? Most think one is imminent, but there are still some very substantial obstacles in the form of political leaders that are ready to fall on the sword over the issue of the debt and deficit.
Source: Armada Corporate Intelligence.