Posted in: spread-betting
RE: Trading/Spreadbetting board21 Jul 2011 15:54
From FX360
The European Union has had enough. According to the draft of the EU Summit plan, European officials finally realize that it is time to pull out the big guns and extend a lifeline to Greece that will yield a long term solution. Even though the additional support for Greece will come at the expense of taxpayers in other countries, the sharp rally in the euro and decline in European CDS spreads indicate that investors are satisfied with the EU's plan. The reason is because there is everything that investors could possibly want in this deal - an extension of EFSF loans from 7.5 to 15 yrs, an enabling of the bailout fund to recapitalize banks, lower interest rate for new EFSF loans, private sector involvement, acceptance of Greek collateral, intervention from the EFSF on a precautionary basis and a "Marshall plan" of investment and growth stimulation for the Greek economy. In other words, the EU has provided Greece with every possible option and if this plan doesn't work, nothing will. Going into the EU Summit, investors had hoped for a big announcement from European officials that would include some but not all of the elements in today's deal. The fact that the EU has thrown everything including the kitchen sink into this is very comforting for investors and unless the rating agencies say this is not enough for Greece to avoid a default, the euro should hold onto its gains.
Aside from providing more money to Greece, the 3.5 percent interest rate on new EFSF loans is a more generous term than what many European nations with sounder finances can receive from the market at this time - French bonds for example with the same maturity trade at 3.8 percent. However as generous as this may be, the deal is not only to save Greek banks but banks in Europe in general. Private sector involvement has not been hashed out but 3 options have been provided - debt buyback, rollover and swap. However the most encouraging proposal is for a Marshall plan for Greece because a Marshall plan is aimed at stimulating growth - which is the only real way to get Greece out of this crisis. The Marshall Plan was introduced after World War II and involved using American funds to rebuild Western Europe. In the case of Greece, rather than piling on more loans, this plan would involve investment into new projects aimed at invigorating the Greek economy. The best way to describe this is the old saying, "Give a man a fish and you will feed him for a day. Teach a man to fish and you will feed him for a lifetime." The only question is, will the EU have enough money to offer Portugal, Spain, Ireland or Italy a Marshall Plan as well?
We are still waiting on the official statement to be released along with the press conference by the President of the European Council and European Commission but as long as most of the terms in the draft are maintained, the market will be satisfied.
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