The Euro has recently been given a much needed lift on optimism that a second bailout package to Greece will be approved in the next few days. Germany has already indicated that it will be contributing and is no longer pushing for debt restructuring.
The IMF-EU-ECB troika is close to reaching a deal to provide a loan of billions of Euros to prevent Greece from defaulting on its 327 billion Euro debt. Last May 2010 the IMF-EU provided Greece’s first rescue package of 110 billion Euros.
Last week the IMF threatened to withhold paying its portion of the aid tranche in the next installment due in mid June, causing the Single Currency to tumble as fears spread across the markets that the Euro is doomed.
However, Germany’s announcement by the beginning of this week gave a sigh of relief and confidence that a resolution to the debt problem is near, lifting the Euro to new three-week highs against the US Dollar.
The question arises though, is this false hope for the Euro? Or is this a temporary “band-aid” to the solution. Perhaps the markets should not only focus on Germany’s actions (to help) but rather on Greece’s actions (on what it can do to help).
It is good news that Germany is no longer demanding restructuring of Greece’s debt, however, it does not mean that debt restructuring will not eventually happen. This is a possibility again if Greece des not meet its new austerity measures that the troika will put into place in the second bailout package. If Athens fails to keep up again, we will be back to square one again.