Business, Finance & Economics

Greek bail-out: where's the panic?

The terms of the Greek bail-out package were supposed to be agreed with its private bond-holders two weeks ago, then last Friday, then definitely before last Monday's EU leaders' summit in Brussels and then again by today.

Nothing is happening … and it's not clear when there will be agreement. The EU's finance ministers were scheduled to meet Monday in Brussels to discuss details of the EU's 130 billion euro rescue package for the country. But that package is conditional on the country's private creditors agreeing to take a substantial loss on the bonds they hold.

Six months ago this would have triggered panic in the markets. Today the FTSE 100 closed at a seven month high, up 1.8 percent on the day. The Paris CAC and Frankfurt Dax posted similar gains.

What gives?

First, some speculation on what's holding things up: two weeks ago it was reported that private bond-holders would take a 50 to 70 percent loss on their bonds. The sticking point became the rate of interest on new bonds that would be issued to replace the old ones. The bond-holders were holding out for 4 percent interest, too high, the Greek government said.

Now the reporting - all of it coming from anonymous sources - has the sticking point on the European Central Bank taking losses on its Greek holdings. If the private sector is going to take a bath, the public sector should as well, is the thinking, according to eKathimerini.

That's the state of play and there is no end in sight. The EU hasn't agreed to anything, when they do the terms will have to be agreed by the Greek parliament - and there's no guarantee they will do it. March 20th is the date when the big bills come due for Greece and a bail-out needs to have been agreed all around and funds made available otherwise default is Greece's only option.

But the markets and the national leaders seem incredibly unworried about the situation. I think that is because the markets have figured out that Greece will struggle no matter what is agreed, they have priced default into their considerations. A default may trigger insurance pay-outs - credit default swaps - and so the bath private creditors take may not be so bloody.

Euro zone country leaders, particularly Angela Merkel, have decided they can live without Greece in the single currency. The ECB has been lending out money to Europe's banks at bargain basement rates. Many are exposed to Greek debt, but these loans will help them weather the storm - although the OECD and IMF are warning they will need even more.

Finally, the trend lines from the U.S. are positive. Today's U.S. unemployment figures being the best of the lot.

The Greek situation is still a crisis, but increasingly it looks like an intramural one. It's a crisis just for the Greeks.