On Wall Street, reactions vary
Greece is on the cusp of receiving a third bailout, this one totaling roughly $95 billion, after its eurozone creditors agreed to a deal Monday in exchange for major changes. The basic deal, which came after 17 hours of negotiation that ended early Monday
DAVID KELLY Chief Global Strategist, JP Morgan Funds
The Greek situation seems a little clearer. The 27 other European Union governments, in coordination with the International Monetary Fund and European Central Bank, have come to an agreement with the Greek government designed to keep Greece in the eurozone and establish a third bailout fund. This agreement will undoubtedly be met with hostility by a large section of the Greek public and weary resignation by the rest. However, the last week appears to have made three things clear to the Greek government:
First, the rest of Europe is determined not to let Greece’s (antiausterity party) Syriza look like it has “won,” and so has insisted on tougher measures and a tougher outcome for Greece than would have occurred if the Greek people had accepted the proposals of their creditors a week ago (in a referendum).
Second, without this agreement, Greece was looking at a complete economic and humanitarian disaster.
Third, despite assurances that Europe wanted Greece to stay in the euro, European leaders weren’t bluffing and recognized that the economic fallout from a “Grexit” could be contained. This meant that Syriza had essentially no bargaining power.
For investors, it is this third point that is probably the most important. There will likely be further bumps in the road as Greece tries to swallow this bitter medicine. However, regardless of the ultimate Greek outcome, the European economy should remain on track, and global financial institutions look secure.
DONALD LUSKIN Chief Investment Officer, Trend Macro
“Agreekment” has been reached — an agreement to negotiate on a huge Greek bailout provided that the Greek parliament submit to various so-called austerity measures by Wednesday. The Greek government could fall in the process, which would introduce further risky delays. This is the compromise in the “prisoners dilemma” we’ve been expecting. It seems about optimal. It avoids the many risks of default and “Grexit.” But the euro area’s brinksmanship over the weekend demonstrated its resolve in the face of a blackmailing suicide threat, and the demands now upon Greek prime minister Alexis Tsipras and Greece are punishments that should dissuade populists in Spain and elsewhere from imagining that they can vote away their debt obligations.
PAUL HICKEY Co-Founder, Bespoke Investment Group
Greece has a deal! The deal provides a framework for access to the European Stability Mechanism (ESM bailout fund), but is replete with conditionality and reforms. In a word, Greece caved at the negotiating table. Next steps from here require the marshaling of popular votes for the bill by the Greek government. It’s likely that the vote will pass the Greek parliament this week, but it’s also possible that Prime Minister Tsipras’ government could fall in the process. This would be because Syriza may not support a deal, as they only narrowly supported the conciliatory Greek offer last week in a vote, and the deal on an offer today is much harsher, in our view. Expect more headline stress.
GARY KALTBAUM President, Kaltbaum Capital Management
What hasn’t changed is that Greece takes in much less than they pay out and what hasn’t changed is the lenders keep feeding what is simply a black hole. A black hole where a 175 billion euro economy has a public debt of 320 billion euro. Any deal will take weeks, if not months, to work out, and as of this second, any deal does not include any write-downs of Greek debt. There is just no way anything gets worked out without write-downs as there is no chance of anything being paid back. We will just watch a bigger credit card being issued again.
CHRISTOPHER VECCHIO Currency Analyst at DailyFX
The lust around the announced agreement between Greece and her creditors has already started to wear off. The euro vs. dollar is back under $1.1100, after flirting with a break of $1.1200 on the initial reaction to the agreement. Developments on the price charts suggest that markets are weary about the deal’s ability to help Greece right the course, and perhaps are rightly discounting the possibility that this “solution” is the one that ends the cycle of mini-crises in the eurozone.