Global markets rallied overnight amid optimism that a deal between Greece and its creditors may be reached in the foreseeable future. First a German official made comments that Germany would allow Greece to receive a loan in a compromise deal, but it was later denied in a statement from the German government. Greece’s Prime Minister Alexis Tsipras remains optimistic and said that they have ‘agreed to keep looking for a solution’, which was obviously enough to trigger a market rally. Whilst investors have heard these kind of comments several times, last night’s progress indicates that both parties will intensify efforts to find a joint solution in order to avoid a Greek default.
Whilst Greece is nowhere near a solution, the purpose of the current negotiations is to find a short-term solution that gives Greece time to breathe. German Chancellor Angela Merkel emphasised last night in Brussels that ‘the goal is to keep Greece in the Eurozone. (…) If there is a will there is a way.’
As all parties have a common goal (which is to avoid a Greek default) and are willing to negotiate, investors wonder why these talks have already dragged on for four months. To certain parties it may appear that Greece’s officials are ‘wasting time’, but one of the biggest challenges for Tsipras is to stand by his election promises, that allowed him to be in this position of power in the first place. When Tsipras made his election promises to the Greek people apparently he did not foresee having to act under financial constraints and facing the brutal reality that he could run out of money almost every single day. Like in many other democratic countries the opposition party has always great ideas on how to run the country better, but now being in a leading position, Greece’s new prime minister has to pass a reality check.
European equity markets have experienced a correction since reaching a high around two months ago. At Wise-owl we consider the pullback as a buying opportunity, rather than a reason to sell, however the potential Greece euro exit still looms. Last night’s events may have been encouraging for speculative investors but at the same time we have to acknowledge that we are only coming closer to a short-term solution. Even if Greece and its creditors come to a conclusion, there is no guarantee that the bailout funds will secure a sustainable future for both parties.
Author: Simon Herrmann
Jun 11, 2015
Simon is a financial analyst at independent research firm Wise-owl specialised in small-mid cap growth opportunities and ethical investment opportunities. Simon's aim is to disrupt the cliché approach to investment decision making as he believes that socially and environmentally responsible behaviour is a necessity to long-term wealth creation. Simon has a deep fundamental understanding of the global financial landscape and has compiled 300+ research reports, valuations and corporate appraisals. Simon is commonly featured in major media outlets and his research is published weekly in The Australian.