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Euro Crisis Solved, for the Umpteenth Time

Written by: Bo Peng 06/11/12 - 8:11 AM EDT

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But before you jump on the bull wagon, here are a few things to think about in the longer term, meaning from a few days to a few weeks/months:

  • The short-term bullish outlook is so one-sided that it might exhaust itself soon.
  • As indicated above, there are still a lot of uncertainties about the deal. When they are clarified, disappointment is virtually certain; the only question is how much and what.
  • Rajoy vehemently insisted Spain wouldn't need help just a few months ago. Why should we believe him on any assurance he utters now? For that matter, why should we believe anything any eurozone leaders say, except the Germans, based on their perfectly consistent trackrecord of denial and false assurances and promises since 2009?
  • Germany, the sole Eurozone superpower, has been conspicuously absent in most of this excitement. It looks more and more likely that they'd have to kick out either Greece (and eventually the rest of PIIGS) or Germany. Whatever the currency may be called without Germany, it wouldn't be a major one.
  • The no-strings-attached package for Spain could cause huge political backlash in Greece, Ireland, and Portugal, which have to pay heavy prices for their respective rescue. This deal, before it has any chance of finalizing, will probably tilt the political scale in Greek election on June 17 heavily in favor of the opposition, resetting the entire Greek deal, and hastening "Grexit."
  • Here's one way to look at the deal: Eurozone countries fund the package for Spanish government, of which the Spanish government is responsible for ~12% (and Italy, the next target for bond vigilantes, is on the hook for about 18%). If this conjures up images of a bunch of drowning guys bravely rescuing each other by pulling each other's hair, congratulations: You are still sane and logical.
  • Here's another way to look at the deal: the Spanish government will lend the money to Spanish banks, which have been the main buyers of Spanish sovereign debt over the past few years to maintain the illusion of the government retaining market access. Now that banks ran out of money, the government will step up to lend money to banks so that banks can lend money to the government.
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