NYT Upshot Agrees

Euro Crisis: The Greek Deal Is a Disaster for Greece, and Maybe for Europe:

On Monday, there was yet another deal. But this time it is one that pushes Greece into the abyss, even if financial markets don’t acknowledge it just yet and even if what happens next is deeply uncertain.

…Just a week ago, its voters overwhelmingly rejected a bailout offer that was less punitive than the one its leaders just accepted.

Yet the deal that Greek leaders and their creditors reached Monday morning after a brutal series of overnight talks promise to deepen political and economic strains in a country already in depression.

And this, oh yes this:

France “won” in the sense that the unraveling of the eurozone did not happen on July 13, 2015. But it came at the cost of policies that make it less likely that will be the case one, six, or 12 months from now.

If this counts as a victory for the European project, it is hard to imagine what a defeat would look like.

Why are the financial markets up on this? Gangrene is better than amputation? Why should the stock markets be happy that bond vultures were (temporarily) saved at the expense of the real economy?

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One Response to NYT Upshot Agrees

  1. It is easy to see why financial markets are up. Financial prices are the integral of the news of the last few hours and reflect very short-term thinking (that’s the fundamental problem with financial markets in general). Chaos tomorrow is not the same as chaos today. Even options (e.g. puts and calls) have a “time value” close to their expiration when they are “out of the money” because there is a non-zero probability of a move “into the money”. If the chaos of Grexit has been kicked down the road six months, that’s an eternity to the markets, and besides, if they can drive up prices now on the good news, they can then sell at a higher price before the eventual chaos crash.

    No one is doing the Greek deal because it makes sense economically. It is all about politics. Germany wants to conquer Europe not with tanks this time, but with banks (not my rhyme — it is an observation common at #ThisIsACoup).

    It appears that Tsipras did not have a drachma fall-back strategy, and so in the end had to accept whatever Germany demanded (with minor softening by Hollande). Without a fallback, he has to give in to reopen the banks or what follows will make the current GDP drop look mild.

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