Greek deal or no deal
by Peter Switzer
With Wall Street on a public holiday for Presidents’ Day, the focus has gone onto the lead from European stock markets for our local market as the eurozone finance ministers are expected to sign off on the Greek bailout deal. Markets were also buoyed by reports from China that monetary policy will be loosened, which should push up global demand, particularly for key Aussie exports — coal and iron ore.
Monday was the day when the sign-off was to happen but when stock markets closed, the signatures were not on the paper but equities shot higher on the firm expectation that the deal was done and dusted. The Europeans also liked the news out of China and that helped stock prices on the Continent, which went close to a seven-month high.
The French stock market was up 0.68 per cent while the German DAX index put on 0.96 per cent.
Reuters says the FTSEurofirst 300 index, which lumps together the top stocks of the EU is now up 8.8 per cent in 2012 after giving up 10.7 per cent last year.
To recap, the Greeks are after 130 billion euros but it does require private bondholders, largely financial institutions, to cop a big loss on their investments and in return the Greeks have to implement tougher budgetary policies. This explains why there are protests on the streets of Athens nowadays.
Greece is only 2.4 per cent of the EU but the fear has been that a Greek default could spread to other countries. A number of crucial agreements needed to be put in place concerning the new loans to Greece, the role of EU’s central banks and a bond swap of old for new, clearly with better terms for the Greeks, which means losses for the existing bondholders.
Two-year debt drama
out debt drama has now been going on for two years and nine days in case you were wondering, and so nailing this should create a gigantic sigh of relief. Everyone knows that if this meeting brought failure it would send a market shockwave through stock markets.
It's worth noting that the rescue package is 130 billion euro but the Greeks only need 14.5 billion euro by March 20 to avoid a default.
At the time of writing the meeting was still going on and optimism still prevailed but the past two years have taught us not to presume that the Europeans will always conform to expectations.
But that said, I liked the take on the meeting by the French Finance Minister Francois Baroin who said:
“It’s like a puzzle: all the pieces are on the table, we have to put them together — that’s what we’re going to do this afternoon.”
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Published on: Tuesday, February 21, 2012
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