Markets shrug at Greece deal

The agreement still leaves huge holes of unfinished business and serves to kick the can down the road for political purposes.

By Jim J. Jubak Nov 27, 2012 6:22PM
Image: Europe (Photodisc/SuperStock)Tuesday, the sun rose on an agreement to finally deliver the money that Greece needs to keep the lights on.

But European financial markets don't seem especially impressed. The German DAX Index closed up just 0.55%. The French CAC 40 dipped by 0.08%. Spain’s Ibex 35 lost 0.14%. And the Athens stock market managed just a 0.29% gain.

Why no dancing on the trading floors?

I can think of a few reasons.

First, I think global financial markets have assumed that European leaders would eventually cook up some kind of deal so the announcement Tuesday is not a surprise.

Second, I think global financial markets have other worries -- the U.S. fiscal cliff, for example.

Third, and most important I think, financial markets are well past the point where they’re impressed with a "deal" that leaves huge holes of unfinished business and that are transparent attempts to kick the can down the road for political purposes.

The deal as announced will send 42.5 billion euros ($55 billion) to Greece starting with 34.2 billion euros in December. The initial December payout of 30.3 billion euros will include 22.4 billion to recapitalize Greek banks and 7.9 billion to help the Greek government pay its bills.

On paper the agreement will cut the country’s debt by 40 billion euros to 124% of GDP by 2020. It would cut the interest rates on loans and extend their maturity by 15 years. Profits of 11 billion euros from the appreciation of Greek bonds purchased by the European Central Bank are to be returned to Greece. And, the agreement envisions a program to buy back Greek debt.

I don’t think anyone really believes that these steps are enough to get the Greek economy growing again. And without growth and with further recession Greece is likely to miss all the targets in this deal.

Assuming the deal actually gets implemented. As usual, it won’t go into effect until it’s approved by national parliaments. That looks likely with even the German Bundestag showing a solid majority for approval.

But that’s not the biggest problem this time. The deal is actually only a tentative deal. The International Monetary Fund won’t hand over its share of the rescue money -- about one-third -- until after the debt buyback is over.

And that buyback already seems to be in trouble. A statement issued by the Eurogroup of finance ministers said that the prices for the buyback should not be higher than the market price for the bonds at the end of last week. That’s not offering bondholders much incentive to participate and raises the worry that the buyback will fail to generate a reduction in Greek debt large enough to satisfy the IMF that Greece is on a sustainable path to recovery. IMF director Christine Lagarde has said the IMF won’t walk away from Greece, but it’s not clear exactly what that means.

You don’t have to be very cynical to see this deal as an effort to postpone the day of real reckoning on Greece until after German elections in the fall of 2013. The money in the package is enough to get Greece to 2014 -- unless, of course, the Greek economy tanks faster than is currently anticipated. All the plans for buybacks and interest rate reductions look like an effort to avoid the almost certainly necessary restructuring of Greek debt until after the German elections since restructuring is a real hot button issue in Germany.

The economies of Greece and the rest of the eurozone may not give the politicians the time they think they’ve bought with this deal. Tuesday, just about at the same time as the announcement of an agreement, the French government reported that the number of unemployed workers in France had climbed to the highest level in 14 years in October.

But in the tradition of European politicians that we have all come to so respect in this crisis, French labor minister Michel Sapin promised quick action: "This run of negative figures on employment only increases our determination to do something to reverse the trend between now and the end of next year."

At the time of this writing, Jim Jubak didn't own shares of any companies mentioned in this post in personal portfolios. The mutual fund he manages, Jubak Global Equity Fund (JUBAX), may or may not own positions in any stock mentioned. For a full list of the stocks in the fund as of the end of the most recent quarter, see the fund's portfolio here. 
Nov 27, 2012 7:04PM

Sign me up for the program where I can get portions of my debt written off multiple times and not go bankrupt!

What a joke.

Nov 27, 2012 7:09PM
The funny thing is that as long as they can keep kicking the can, the markets will be Ok with it.  Everyone knows Greece can't be fixed and they are just betting on the timing of their exit.  I sure wouldn't loan them anything.. Oh wait I probably already have!
Nov 28, 2012 7:36AM

Taking it piece by piece... Giving Greece the cash to keep the lights on went into Greece and out to utility companies. Thus, Greece owes more but got nothing to jolt recovery with. Unless you sever the hands in the pot, Greece is not going anywhere.

European financial markets grasp this and know what happens next- people still need recovery and a new request for cash starts-- today. What do you do when you realize that you are the problem and doing yourself in is the solution?

Our Fiscal Cliff can't come soon enough. Higher taxes please. Nosebleed prices on everyday goods. Gas prices so high that it trumps diamonds and gold. These things are toxic for wealth, a temporarily inconvenient bump in the continuance of poverty and the impetus for recovery. Who is kidding who with low bank rates, fiat money going straight to banks and a rigged stock market environment? Greece and America share a common need... close the banks, end the Federal Reserve and get RID of Wall Street. A basic economy has criteria, none of which involves money circulating in a wealth class and not on Main Street. Job RECOVERY not creation. Elimination of the business entity if it continues to be separate from the rest of us.

Nov 27, 2012 7:44PM
how can the markets be going down. 4 days over holiday pumping billions into business's pockets.
Nov 28, 2012 8:59AM

"D'humain troupeau neuf seront mis a part; De jugement & conseil separees, Leur sort sera devise en depart, Kappa, Theta, Lambda, morts, bannis, egarez."

Of the human flock, nine shall be set aside, Being divided in judgement and counsel, Their destiny shall be to be divided, Kappa, Theta, Lambda, dead, banished, scattered.

Century I, Quattrain 81

The US Supreme Court has 9 members set aside from the rest of us. They are of different philosophy and counsel. A matter of the highest importance is ahead- the elimination of College Faternities and Societies and Alumnus Associations. They are the stuff devices and division are made from.

Animal House was just a movie.
GOP House is a Reality that curses progress.

The Supreme Court has 2 matters before them that should not be there... a case prohibiting selling old textbooks because the Bushes own shares in all the publishing companies so they can dictate what their characters are for historic reference and old books can compromise lies. Another is the Church College in VA that challenges the HealthCare Act because it is using religion like a weapon of mass adverse influence and corruption. Scuttle these phony cases and let's dissolve the incubators of New World Order. Life, Liberty and the Pursuit of Happiness, Freedom for All. Degrees are not tickets to free rides for Faux Elitists.

Nov 28, 2012 12:02AM
Both the EU and US are busily printing more money to make sure that they repay debt plus interest with deflated dollars or euros while inflating assets back to old levels but at inflated currency basis.  It's nothing but a monopoly game with the bank getting larger and larger.  Who cares it's one way to get all those profits and saving by the rich back into circulation.
Nov 28, 2012 10:37AM
Awry's Bakery is threatening to close it's doors if it cannot find a deep pocket partner. Awry's said the same thing when union negotiations came earlier this year. The rank and file took the pay-cuts to keep their employer running. Obviously... management lied about the dire nature of circumstances. That brings to mind the Hostess scenario. In both cases, the Supreme Court should be requesting financial data on the wages, benefits, perks and privileges of the entire Board and management to determine their losses. Commonsense dictates that if you are paid oodles to run a business and it fails, you should be broken or in jail, right? Is it all in Trusts? BUST them. If we cannot establish parity for all Americans, then the Supreme Court needs to pass judgment on the imbalance and be vigorous in the penalties. We need to start seeing rich folks-- broke and cash working to Main Street, RIGHT NOW.
Nov 28, 2012 10:27AM

"WASHINGTON (AP) - The head of the financially struggling U.S. Postal Service says the agency must be allowed to ease the terms of prepayments into a retiree health care fund and eliminate general mail delivery on Saturday. Patrick Donahoe tells "CBS This Morning" the agency isn't asking Congress for money. He says, "I think most people don't realize, we're 100 percent self-sufficient. We pay our own way." But the postal chief notes the agency is losing $15.9 billion this year. Donahoe says the post office needs to refinance retirement health fund payments to $1 billion a year instead of $5 billion. He says the Postal Service would continue package delivery on Saturday and keep post offices open. In this scenario, he says the agency could be $8 billion in the black each year."

Works for me... let's do it. Notably, Congress has failed to do it's job for years now and will enjoy outrageous pensions, retirement and pompous loser benefits. We should be having every one of them writing checks to reduce that Postal deficit. A reminder that many veterans are USPS... it is ludicrous to "thank you for their service" but screw them in retirement.

Nov 27, 2012 11:14PM
Nov 28, 2012 12:17PM

What the hell brought up the Hostess discussion and bakeries....??


This is why I pretty much skip anything, that says Greece or Eurozone in the title anymore...

The discussions/arguments are meaningless...


Wake me up/send me an e-mail when it's over for them..(Greece)

Don't waste our time or the 0 or 1's bits.

Nov 28, 2012 5:43AM
Obama had nothing to do with Hostess Going Out Of Business People Get Over It You Have President Barack Obama for the Next 4 years so Deal with it i cant say what i really want to say on here But Kiss My Preisident You Know What.
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