Is a Delay Positive for the Euro Crisis?

02/11/2015 12:01 am EST

Focus: GLOBAL

Jim Jubak

Founder and Editor, JubakPicks.com

MoneyShow's Jim Jubak reviews the market's surprising reaction to the latest comments from Germany regarding Greece's debt problems.

It tells you something about the euro crisis when German Chancellor Angela Merkel can come out and say negotiations with Greece are going to drag on for a long time, this is going to take a long time to solve, and the market regards this as good news, and it is good news if what your expectations were is that maybe we'd have a short immediate sharp crisis on the rhetoric coming out of Athens, and Berlin, and Helsinki.

It looked possible that we were going to get an immediate crisis so Merkel is saying, well, you know, it's going to drag on for a while. It strikes everybody as being a pretty decent result. The problem, of course, is that once people decide that it's really not all going to blow up tomorrow, they start to recalibrate their expectations and the problem, of course, is that it will take a long time. It's going to drag on forever and there's really no sign that there's an immediate consensus about what happens.

One of the big bones of contention, oddly enough, is the European Central Bank's desire that the Greeks commit to some kind of short-term deal because they don't want Greece to let this drag on forever and for Greece to get into a position where they get into so much trouble around June that it undoes all of the progress that has been made with the $300 billion euro bailout, $300 billion bailout, so it's odd but the Greek government has basically said to the Europeans and the European Central Bank, hey, you know, we could issue, you know, another $5 billion or $10 billion euros worth of short-term Treasuries and that would bridge us to the point where we might not need any more money from you guys and the ECB has said, no, we're not going to raise the limit. We would really like you to do some kind of deal that's not simply extending things. We'd like you to get your finances in better shape so that you can actually exit the bailout program when you need to raise more money in June and that's what we're worried about.

That kind of basic disagreement about what the time table might be, whether Greece is going to be able to exit the bailout program, or whether it's going to need more funding, all of that needs to be resolved and, even when it is resolved, then there's the question of whether you can sell that to the member governments and it looks like, right now, that's going to be a very tough sale, pretty much for any kind of deal to the Germans, to the Fins, and to the Dutch, so, yes, at the moment, we're seeing kind of a bounce in the euro at a $1.12 or $1.13, it had fallen too far, and, now, we're seeing a bounce off the bottom but there's really no sense of progress here and I think we're going to revisit these levels or maybe even move back to $1.10 to the euro and maybe even slightly lower once we start to get a recalibration of, yes, it's not today's disaster but it will unfold over the next weeks and months.

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