Investors doubt Greek peace will last

Financial Times
July 1, 2011

The end of yet another momentous week for Greece. But for all the drama and the relief rally in global markets, few investors are convinced authorities are any closer to resolving the Greek crisis.

This week brought a French proposal for investors finally to take some pain over Greece and two parliamentary votes in Athens that pave the way for fresh international bail-out money. But strategists and investors say neither event helps Greece in its desperate battle to achieve debt sustainability.

“There is nothing that we have seen in the proposals that gives hope of a long-term solution,” says Elisabeth Afseth of Evolution Securities.

Still, markets had dropped sharply coming into this week, so there was relief that disaster had been averted. European stocks ended the week up 4 per cent, while Greek two-year bonds have been the best performers in the developed world in the past two weeks, albeit still the worst so far this year.

That reaction was largely because of the positive Greek vote. But arguably more important was the rollover proposal, which gained quick support from both French and German banks. To fund managers and analysts there is little doubt as to why: banks are the relative winners of the scheme while Greece and other European governments are the losers.

“The plan is mostly designed to continue transfers from the European Union taxpayers and the International Monetary Fund to French and German banks, and to buy some time – perhaps a year or so,” says Michael Cembalest, global head of investment strategy at JPMorgan Asset Management.

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