Overnight, policymakers agreed EUR130bn second bailout for Greece. Private bondholders accepted terms. But it’s not over yet.
While some calm will return to markets, lifting USD and EUR swap rates, Bund yields and the like, investors need to consider what comes after the latest lifeline thrown to Greece.
Yes, IMF Christine Lagarde is right to say it is best for the long term future of Greece. That’s for public consumption.
But is it good for the euro?
Language of the policymakers since months suggests the unwritten plan is to contain euro-wide contagion, not save Greece. Once Greece is stabilised and no longer poses a contagion risk, an economy that is now beyond meaningful rescue will be asked to leave the euro. While it poses contagion risk, money will (miracuously) always be found for it – unless voters elsewhere in the eurozone say enough is enough.
The question now is: does Greece have incentive to quit life-support? Already pundits are saying crisis resolution is delayed, rather than achieved.