So Greece passed an austerity package and it appears that they will get a bailout from Germany and France. I expressed my concern in the past about the perils of a Greek default and now that it is “resolved”, I feel a quick follow-up is necessary.
I get the sense from my readings that this won’t solve anything long-term. The problem still exists (Greece can’t pay back their debt) and has probably been pushed down the road.
At the same time, the situation in Greece seems to be getting more combustible. I do wonder if (maybe when?) more cuts are needed down the road how the people will react. Will the government be thrown out, making default inevitable?
That said, the delay does give holders of Greek debt more time to adjust their positions, strengthen their capital base, and hedge accordingly. Basically, a slow moving train wreck is better than a quick one in this instance (e.g. 2008). It should contain the damage I outlined in my previous posts (linked above); “should” being the key word in that sentence. Maybe I am being too optimistic.
Time will tell on this. For now, this is a positive.
