Moving On

02/12/2011 at 4:06 pm 1 comment

This morning, Angela Merkel likened the eurozone’s struggle to contain its troubles to a marathon:

“Marathon runners often say that a marathon gets especially tough and strenuous after about 35 kilometers,” Merkel told lower-house lawmakers in Berlin today … “But they also say you can last the whole course if you’re aware of the magnitude of the task from the start.”

Nowhere has her analogy proved more apt than in the country which originated the concept: Greece. And while it received negligible attention, the Greeks this week reached another milestone on their long slog towards recovery.

Amid significant popular dissatisfaction, which on Wednesday saw the seventh general strike of the year, the leader of Greece’s main opposition party gave a written commitment to the EU Commission, the Eurogroup, the ECB and the IMF that he would support the budgetary measures sought by caretaker prime minister Papademos. As a result, release of the EU component of the nation’s bailout money – thrown into jeopardy by former PM Papandreou’s referendum call – was agreed on Tuesday night. The IMF is due to approve its €2.2bn share of the €8bn aid tranche by Monday. By January, details of the debt swap with private sector creditors are due to be agreed. The exchange is projected to practically halve Greece’s deficit to 5.4% for 2012.

This amounts to quite a lot of news, but of course the Greeks aren’t the only ones who have been moving on. The bear consensus has moved on too. Concerns over Greece have in the market’s mind long been superseded. The solvency of Italy and Spain has been challenged, as well as that of France. Incredibly, there were even confused reports of a “failed” bund issue in Germany too.

Since then, coordinated action by central banks on Wednesday to improve liquidity in the European banking system has calmed nerves and sent stock markets soaring. And only yesterday, successful bond auctions in France and Spain did the same for government debt. Eurozone bond yields have fallen back substantially over the last couple of days (including, crucially, in Italy.)

Europe’s marathon is far from complete. A disappointing EU summit next week, or any number of left field events could plunge us all back into funk and gloom once again. But it is worth reminding ourselves that despite the pitch of fear and associated confidence effects, disaster has yet to strike. And it is just about possible that while the consensus worries about other things (and indeed everything), an exchange of Greek debt is successfully agreed, Greece and the other bailout countries make further progress towards solvency, other eurozone nations go on happily funding themselves with no outside assistance and the global recovery struggles resolutely on.

Like a marathon, this “muddle-through” scenario could prove protracted and painful. But there’s one thing it still doesn’t appear to be, even after the positive market moves this week: priced in.

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  • 1. Two Futures « The Blog @ Vigilant Financial  |  09/12/2011 at 10:31 am

    […] the power to upset the apple cart. And it will determine whether or not the eurozone states can muddle through to the key element of the summit: the prospective agreement of a new eurozone treaty by March […]

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