Life support will continue for Greece

The market is rallying on the results of a conference call today between French President Sarkozy, German Chancellor Merkel and the Greek PM Papandreou. The joint statement  said that they are all unified in their commitment  to keep Greece a part of  EU and that Greece is committed to budget reforms to control its deficit.

This means that Greece should be able to access the next batch of bailout funds and it will keep afloat in the near term, till we reach the next milestone of accessing bailout funds.  Late last week the markets started to think that Greece will not be able to access the bailout funds and will default very soon. This worry was amplified when there were reports that Germany was thinking of an alternative option of letting Greece default and directly dealing with its banks. Looks like the market turmoil changed their minds and the political leaders went back to the original plan.

The Greek bonds are still priced in such a way that there is almost certainty that Greece will default so this is just buying some more time. So maybe we will get a few more days or weeks of going back to concentrating on economic data or earnings. The European leaders are really dealing with this problem very slowly and in a very reactive way so this macro headwind will remain with us and rear its ugly head every few weeks or months.

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