New Greek Deal Solves Almost Nothing, and That’s Just Fine for Stocks

By Paul Vigna

The latest accord between Greece and its creditors came with as many questions as answers, and far more “maybes” than “definitelys.” The markets are usually happy enough just to have some kind of deal. Still this one leaves all the main problems unresolved and promises the euro crisis is going to be with us for years.
The deal, struck last night, frees up some $57 billion for Greek financing, and sets out some broad goals for the Aegeans over the next decade. But it has the smell of a weak compromise all over it, and you can bet your bottom euro that this whole mess will be revisited soon.
“We are still chuckling to ourselves regarding the number of of ‘may’s’ and ‘should be’s’ and ‘is considering’s’ sprinkled throughout the agreement,” Dennis Gartman, who edits and publishes the daily Gartman Letter, wrote today.
Look at the key metric of Greece’s debt load. Under previous bailout deals, the goal was to get Greece’s debt-to-GDP ratio down to 120% by 2020 from its current range around 170%. The 120% figure itself was an arbitrary goal, a number that is only slightly more sustainable that 140% or 170%.
Under the new deal, the goal is now to get the country’s debt-to-GDP ratio down to 124% by 2020, a tacit admission that the old deal was unworkable. The IMF was earlier pushing for an even lower number, but backed off. Still, the Fund is likely to continue pushing for sharply lower debt targets, since it warned the debt level will have to be much lower before Greece can borrow in private markets again.
All this points to the fact that Greece will remain a problem for many years.
The Greek deal leaves more questions unanswered than an average episode of “Twin Peaks,” not the least of which is how private bondholders will fare under this whole thing. But whether or not the deal solves any of Europe’s problems doesn’t matter to the stock market. All that matters for stocks is that the situation isn’t in
danger of any imminent collapse.
“The real reason for the rally in US equities last week was not because of progress in Washington,” Lawrence McDonald wrote, “they were on vacation. It was because the systemic risks from Europe were dramatically lowered.”
U.S. stocks have retraced their morning losses, and while we wouldn’t attribute it all to Greece and Europe, it’s got to make investors more confident to see something like this:

The Dow was down almost 60 points earlier, and is now up 3. The S&P 500 is up 2, and the Nasdaq Composite’s up 4.
Nothing’s been resolved, and you can bet we will be back here again talking about Greece, its decimated economy, its position within the euro zone, and the fate of the much larger Spanish and even French economies. But those things don’t matter today, and that, in the end, is all that does matter.