It's time to take a second-day look at the Greek deal, free from at least some of the day-of-the-news passion. This week should enable investors to evaluate the situation with a little less stress, unless they happen to be sitting on a large position of National Bank of Greece (NBG), off more than 10% in premarket trading.
Sticking with the retro theme, we can maybe look at the deal through the eyes of Gen X favorite Schoolhouse Rock.
The key numbers are (Ready or Not, Here I Come) 5 and 3 (The Magic Number).
This deal definitely buys time and takes default off the table for a few weeks, but it also prolongs Greece's drag on both European stocks and the euro. There's no resolution. What we are in for is a troika (the magic 3) review every few months or so as to whether or not Greece is living up to its austerity side of the bargain.
At least every five months there will be a standoff that takes us right back to the situation we saw last week. In 15 months, it'll be crunch time. In 15 months, Greece will report its first-quarter GDP for 2013. The bailout agreement plans for no 2013 growth, but no contraction either. A slump of more than 2% will bring pressure from the three for even stronger austerity measures.
And that's basically what the current Greece situation boils down to: do you believe that austerity can do all the work?
Schoolhouse Rock never did a whole episode on fractions, but they were in the intro. The Greek plan concentrates almost entirely on reducing the numerator of the debt/GDP ratio and then hoping that will spur a rise in the denominator in 2014. Any proof that this kind of plan has worked in the past escapes me.
For arguments sake, let's say Greece's economy remains in the doldrums and spending cuts and property sales aren't enough to reach the debt-to-GDP targets. At what point does a sovereign nation keep accepting harsher measure from other governments?
Do they start singing along with No More Kings (or Triumvirates?)
He taxed their property,
He didn't give them any choice,
And back in England,
He didn't give them any voice.
(That's called taxation without representation,
and it's not fair!)
What's the chance that Greece grows it way out of its current situation with the current plan and stops being a market headline over here this year? I'll go with My Hero, Zero.