Tags: Greece | greece | europe | dollar | deal

Greece and Europe Really Saying 'We Got a Deal to Have a Deal'

Monday, 13 July 2015 08:26 AM Current | Bio | Archive

European Council President Donald Tusk stated: “Today, we had only one objective: to reach an agreement ... we have finally reached it. One can say that we have 'agreekment.' Leaders have agreed in principle that they are ready to start negotiations on an ESM program … There are strict conditions to be met. The approval of several national parliaments, including the Greek parliament, is now needed for negotiations on an ESM program to formally begin … I welcome the progress and the constructive position of Greece that helps to bring back trust among euro zone partners. Following national procedures, the Eurogroup will work with the Institutions to swiftly take forward the negotiations. Finance ministers will also as a matter of urgency discuss how to help Greece meet her financial needs in the short term, so-called bridge-financing.”

Long-term investors could do well to remain cautious because after all at present it’s all about politics and nothing about the fundamentals that have to change quickly.

I would let the risk-on trades, which are only fueled by hopes and not by positive facts in Greece, to the risk— as well as trend-players for the simple reason the agreement Mr. Tusk refers to is not “definitive” as he explained in his statement.

In the official EU summit statement, there are several really interesting (Very firsts!) wordings, but of which these might be a couple of the most interesting ones: “… (1) the Euro Summit made it clear that the start of negotiations does not preclude any final possible agreement on a new ESM program, which will have to be based on a decision on the whole package (including financing needs, debt sustainability and possible bridge financing) … (2) to develop a significantly scaled up privatization program with improved governance; valuable Greek assets will be transferred to an independent fund that will monetize the assets through privatizations and other means … This fund would be established in Greece and be managed by the Greek authorities under the supervision of the relevant European Institutions…”

Please keep in mind "the Greek crisis is not over yet!” The serious tail risk remains unabated in a Grexit.

It is understandable that many investors get it wrong because of their limited knowledge on how the Eurozone was born and how it evolved and has taken that much time until now.

It’s also understandable many are now really tired of all that’s related to “Greece” after six months of negotiations and five and a half years of rolling crises.

The naked truth is that what is happening these days is nothing more than the latest chapter that's being written of a story that has been going on relentlessly since the 1970s and more especially since the Luxembourg politician Pierre Werner, who was also member of the European parliament, presented his historical report on economic and monetary union to the European Economic Community on October 8, 1970 and since then, most of the time politicians and central bankers have been forced over-and-over-again to bow to the overwhelming market forces they themselves had set in motion (Sounds familiar?).

Please don’t misunderstand me as I surely don’t want to downplay what has been achieved so far, but please keep in mind, all that has been achieved so far is nothing more than “today we got a deal to have a deal.”

What has become clear is the EU is not a union of convergence, but a union of divergence between the “hard money” of the north and the rest.

To refresh our minds it was as early as in 1977 when the (monetary) snake had become a little more than a German mark zone with only the Belgian- and Luxembourg francs, the Dutch guilder and the Danish krone tracking it.

Therefore, when we saw over the weekend a clear split between German Chancellor Mrs. Merkel and French President Hollande on how they saw how to (1) rescue or (2) to let Greece exit, albeit only temporary while knowing very well that was not doable, the whole play of events was nothing more than a “normal” continuation of all these stress situations that has caused the creation of the European currency system, now since 45 years.

All that said, to me the most important message we got over the weekend is that the euro has proved to be not the single currency, the euro advocates want us to believe, but on the contrary, it remains nothing more than a currency denomination of an exchange rate system.

Of course, again, that’s nothing more than my personal opinion.

For sure, it will be everybody’s choice to take or not the real underlying value of the euro, as has been shown over the weekend, into account when considering long-term investments in euro denominated assets.

I still prefer the dollar over the euro and still think parity is still in the cards.

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European Council President Donald Tusk stated: "Today, we had only one objective: to reach an agreement ... we have finally reached it. One can say that we have "agreekment."
greece, europe, dollar, deal
Monday, 13 July 2015 08:26 AM
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