reece has gave in to Eurogroup ultimatum to advance bailout extension proposal, but Germany unequvocally rejected it. It increases uncertainties in the market.

Yesterday (19/2) , Greece has gave in to Eurogroup ultimatum to advance bailout extension proposal, but Germany unequvocally rejected it. It increases uncertainties in the market that worries about Black Swan, unexpected occurences that may inflict huge impact when it happens, like SNB removal of Euro peg in January. However, some consider it to be a good time to enter the market.

Euro

Greek's Trojan Horse

In less than two hours after Greece advanced their bailout extension proposal, German Finance Minister said that they rejected the proposal, as they consider Greece did not propose with the desirable terms in mind. Before that, Eurogroup leader, Jeroen Dijsselbloem, have confirmed that they will do one more meeting this Friday in Brussel to talk about the proposal.

In the text released by Reuters today, Greece Finance Minister letter to Eurogroup president indicated that although Greece is ready to submit to the Eurogroup's demands for appearance sake, but they may deviate from bailout terms. Because of that, in another letter published by Reuters, German accused Greece proposal for being Trojan horse, for it used the term bailout extension only as a smokescreen for bridge loan without actual intention to carry out bailout terms. From the beginning, Greece only asked for bridge loan from the Eurozone and refused to take bailout further. There is a significant difference: Bridge loan will enable Greece to get rid of austerity program, while bailout extension will pressure it to apply austerity. Pressures from ECB and other Eurozone countries apparently got into Greece's head, but they are quietly defending their stance.

Nevertheless, analysts saw the recent development largely as a step in the right direction. The thing is, Greece proposal includes two important keys:

  1. Promise that the new government will honor its responsibilities.
  2. Accept further observation from Troika, the Greece international debt monitoring trio that consists of ECB, European Commission, and IMF.

The second point is especially notable because Troika was hated and previously Greece insisted for the Troika to be dissolved.

 

Under Grexit Shadow

Greece concession regarding Troika give raise to hopes that agreement is not far off for some investors. Meanwhile, some others consider the risk of Grexit to still be creeping if agreement failed to be achieved this week. Therefore, the uncertainties becomes a fight of bet among those who are brave enought to the Greece on, and a source of careful consideration for others.

Grexit
CNBC reported that a number of hedge funds has placed bets on Greece recovery, including Third Point, York Capital Management, Alden Global Capital, Greylock Capital Management and Eaglevale Partners. York Capital saw new volatility as entry point, so even though the company has reduced its investments in the country last year, but it has bought Greece banks and government bonds again. Meanwhile Paulson & Co that holds shares of two Greece major banks said that they are ready to invest more once political stability established. Another step taken by investors includes shorting the European banks' shares that has high exposures in Greece, and shorting the Euro that is possibly down if European economy back down due to Greece. On the other hand, Elliott Management was said to no longer involved with Greece although it did at some point in the past.

Jack Ablin, BMO Private Bank chief investment officer, offered alternative perspective via Time. He said, Euro could possibly rise if Greece leaves, particularly if Greece becomes pandemonium afterward, which will make others less enthusiastic to follow suit. Plus, if uncertainties push investors out, then it will keep interests at low levels. But according to Ablin, the most insidious thing now is uncertainties. An exit from the Euro has never happened before, so the effect will be unpredictable and potentially very scary for the global market. Therefore, investors are advised to keep an eye out for Black Swan.

The recent speculation thrown in the muddle continue to heat the market on varying possible ending for the Greek drama. It needs to be remembered that Grexit in the future is considered unavoidable by many if agreement with Euro is not reached by the end of this week. The next step will be on Greece to disclose its hands, whether they will submit to German's demands unequivocally, or get out of the single currency.