This is an excellent post from Zero Hedge. It got me thinking that the markets ignored the ramifications of Friday’s announcement. Some were obvious at the time, and others are coming to the forefront as people examine what little details there are.
- Since Spain and Italy got special deals without austerity, Portugal, Ireland and Greece will want their own deals renegotiated to include similar features. All of these renegotiations are depleting the available bailout funds.
- A political backlash is developing in Germany, which has elections next year.
- Even though the governmental players no long have official status as senior creditors, they will also have de facto status as the Greek bailout showed.
- Germany and the other core countries are going to be on the hook for a lot of money. ZH believes that bond yields will compress. Will the core countries not stand for this and simply leave on their own? Are small, prudent countries like Austria, Holland and Finland going to keep throwing their own resources at this black hole, or will they bring back the Schilling, Guilder and Marrka?
- This deal will not solve the problems of the Eurozone, which are internal trade imbalances and wide productivity gaps between the North and South.
The only question is when.
Be careful investing, because these markets can stay irrational much longer than we can remain solvent.