The Greek debt deal might have robbed the nation of its sovereignty and dignity, but it keeps Greece in the eurozone, and that’s all the markets care about — at least for now.
Stock exchanges from Europe to the U.S. rallied on the news that the government of Prime Minister Alexis Tsipras agreed to a Greek debt deal that was even more punitive and painful than the one voters soundly rejected at the polls just a week ago.
The joy, however, might be short-lived.
A Greek exit, or Grexit, from the euro bloc has been avoided, but it could all come undone again in just a few days.
After all, the brutal package of reforms needs to pass through the parliament in Athens on Wednesday. Many aspects of the legislation — such as pension reform and tax hikes — were rejected by Greek voters last week. It’s an obstacle that could cause the government to fall, which would trigger new elections.
In other words, the Greek debt deal is not a done deal.
It’s also remains worrisome that Germany clearly wants a Grexit (and France appears to be Greece’s only friend.) As French President Francois Hollande said:
“In Germany there was strong opinion for Grexit, and not just in Germany. I refused this solution.”
Indeed, the conditions attached to the $96 billion bailout program are so onerous and over-the-top, the northern European creditors have to be at least secretively surprised that a Greek debt deal got done.
Markets Like Greek Debt Deal — For Now
For now, however, the crisis in Greece has been contained in such a way that international markets feel comfortable enough to rally in relief.
Nothing has been fixed, mind you. The Greek economy remains in shambles and the conditions of the bailout — which only expand and deepen a policy of austerity — will make matters worse.
But the market hates uncertainty, and the Greek debt deal removed just enough of it to give stocks a big boost.
The Dow Jones Industrial Average jumped as much as 195 points just 20 minutes after Monday’s opening bell. The benchmark S&P 500 added as much as 1% within the first 45 minutes of trading.
Those gains followed sharp moves in European bourses, led by France’s CAC 40, which gained more than 2% at one point on the news.
The relief rally in U.S. equities allowed the Dow to turn positive for the year-to-date. The broader market closed in on a 2% gain for the year-to-date after being negative as recently as last Thursday.
As much as U.S. stocks took a glass-half-full view of the Greek deal, the action in Greek stocks was a better indicator of what the agreement really means. The Global X FTSE Greece 20 ETF (GREK) was off nearly 2% an hour after the opening bell, putting it down 17% for the year-to-date.
This third Greek bailout kicks the can down the road once again — perhaps no father than Wednesday.
Worse, it’s so burdensome that it makes the need for a fourth bailout someday a very real possibility.
As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.
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