This Is Still a Short-Term Fix for Greece
The next 24 hours will be critical for Greece and its economy. After news over the weekend that the euro zone put together a rescue package, Athens will now test the markets reaction.
The country's Debt Management Office will try and sell a €1.2 billion ($1.63 billion) package of short-dated paper. If the response is positive and yields are acceptable then it might be decided that Greece can go it alone for the time being and not draw down on the rescue plan.
That would please Berlin. Germany has always insisted that it will not bail out Greece. Now, it has been forced in to an embarrassing u-turn.
With a default looking like an increasingly likely prospect last week, German Chancellor Angela Merkel may have decided that the risk to German banks -- which have significant exposure to Greece -- may have been too great. I am sure she also realized that a euro zone country defaulting would make Lehman brothers look like a walk in the park.
But Greece will not be able to avoid going cap-in-hand to its partners. Its long-term debt trajectory is still unsustainable. Athens' current government and its future ones must preside over a multi-year economic depression for the country to get its fiscal house in order. This will be very painful and it is doubtful that the Greeks have the stomach for it. Default may have been avoided for now, but it is not off the table.
There is also the issue of the mess in which the euro zone is left. Eurogroup Chairman Jean Claude Junker is risking becoming a laughing stock by insisting that this is not a bailout.
Greece is being offered money at below market rates. That is a subsidy. Consequently, the no-bailout clause is in tatters and I would not be surprised to see legal challenges that could mean that Germany won't participate.
The euro zone still doesn't have a workable long-term mechanism for crisis resolution. What it has provided for Greece is a sticking plaster not a cure.