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Lessons to be learned from Greek saga

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Salman Ahmed (pictured), Global strategist & Portfolio Manager at Lombard Odier Investment Managers, comments on the latest Greek bailout deal… 

After numerous last-minute deadlines and several twist and turns including the missed IMF payment, we finally seem to be heading towards a resolution to the latest episode in the EZ debt crisis (once again centred around Greece). There is still some lingering uncertainty  as the reforms agreed by Tsipras have yet to be put to parliamentary vote but indications are that after the referendum Tsipras is enjoying a stronger domestic position than just a couple of weeks ago.
Overall, we think that the following lessons can be drawn from this saga;
1. From the market’s perspective, backstops put in place in the aftermath of 2011/12 episode seem to be holding quite well. Volatility in periphery markets didn’t get out of hand even when uncertainty around Greece reached its peak in the immediate aftermath of the referendum announcement. This marks a clear shift from the dark days of pre-“Whatever it takes”.

2. Support for the European project remains strong, even in Greece despite all the economic pain the country has taken.

3. The modus-operandi of the EU authorities seem to be pushing things to the edge before moving ahead with reforms. Creating a “crisis” type situation seems to be the main way to get through political opposition.

4. The US and IMF both seem have a very strong preference towards keeping EU intact.
Looking ahead, whilst implementation risks remain, Germany seems to have put in stronger conditionality on further aid money to Greece. This means it is totally conceivable that noise blows-up again around Greece in coming months, but the above lessons are likely to revisited if/when such a situation occurs.

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