Fitch Raises Greece to B-, Out of Default Territory

Greece is no longer in default but the slow pace of reforms, political uncertainty and recession could push it back towards bankruptcy, Fitch Ratings said on Tuesday after Athens completed the largest debt restructuring in history.

Fitch upgrades Greece to a speculative B- rating, but warns that political uncertainty could push it back to bankruptcy.

Fitch assigned Greece a speculative B- rating, becoming the first major rating agency to lift the country out of default territory after the debt swap cut Athens' debt mountain by about 100 billion euros, or close to a third.

It was the first time Greece's rating had been upgraded since the debt crisis erupted at the end of 2009 and the first Fitch upgrade since 2003, but the B- rating still places Greek government bonds firmly in "junk" territory.

Following the debt swap deal and a new EU/IMF rescue plan, Greece's debt is expected to fall to below 120 percent of GDP in 2020 from 160 percent now. That is still much higher than is generally regarded as sustainable.

"The agency considers that significant and material default risk remains in light of the still very high level of indebtedness post-PSI and the profound economic challenges faced by Greece," Fitch said in a statement, referring to the debt swap deal.

Greece has a poor track-record in implementing reforms under a first European Union/International Monetary Fund bailout agreed in 2010 — failing to meet targets in areas ranging from privatizations to cutting its deficit and reducing red tape — and Fitch warned that implementing reforms under a new 130-billion-euro rescue plan would be "very challenging."

"Moreover, in the near term, the prospect of a general election and uncertainty over the composition and commitment of a new government to the EU/IMF program also poses a significant risk," Fitch said.

Greece is scheduled to hold general elections at the end of April or early May. Opinion polls indicate no party will get an outright majority and many voters are tempted by anti-bailout parties. The conservatives, who are in a coalition government with the socialists and are ahead in the polls, back the bailout but may seek to renegotiate some of it.

The three major rating firms have repeatedly slashed Greece's rating throughout the debt crisis, cutting it to default over the debt deal in which private bondholders lost most of their investments in Greek government bonds.

Fitch's new B- rating has a stable outlook, indicating the agency is not planning to change the rating again soon.

Standard & Poor's said last month it was likely to raise Greece's rating to the "CCC" category after the debt swap was completed. Moody's said it would revisit Greece's rating "in due course."

Greek debt could fall to 116.5 percent of GDP in 2020 and 88 percent in 2030, according to a confidential EU/IMF report obtained by Reuters on Tuesday. However, the lenders warned that Greece is "accident prone" and debt could still total more than 145 percent of GDP by 2020 if Athens further delays reforms and privatization plans or if the recession is worse than expected.

Under the combined weight of austerity and delays in reforms needed to cut red tape and shrink the state, recession has been consistently worse than forecast by the EU and IMF since the first bailout was agreed in 2010.

In turn, Athens, now in its fifth consecutive year of recession, has repeatedly missed its fiscal targets.

Copyright 2012 Thomson Reuters. Click for restrictions.

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Swap Talks Over Greece Could Test the Market

The financial system could face a test this week as industry officials debate a provision of the Greek bailout.

PNC | Brand X Pictures | Getty Images

Greece is preparing to overhaul its bonds next month, a restructuring that could potentially prompt payouts on credit-default swaps , the financial instruments that protect against losses on debt. The International Swaps and Derivatives Association will meet on Thursday to decide whether a certain aspect of the deal will make those payments necessary.

If parties have to make good on the credit-default swaps, the situation could send shivers through the market. An important and long-planned measure that aims to strengthen the derivatives market is not yet in place, raising questions about how the financial system will react if the credit-default swaps have to pay out.

In the financial crisis of 2008, banks feared that their trading partners might not be able to meet such obligations on derivatives and other financial arrangements. The situation set off a chain reaction that paralyzed global markets until governments and central banks provided enormous financial support.

To prevent a similar disaster from happening again, finance ministers in the United States and Europe committed in 2009 to move derivatives like credit-default swaps onto clearinghouses. These organizations, if they work properly, can sharply reduce the chances that a large bank will not make good on their contracts.

But credit swaps that pay out if a European country defaults are not yet centrally cleared. Instead, banks remain largely responsible for making sure the various parties can meet their obligations. While financial firms have taken steps to ensure counterparties can pay, some industry participants say the market would be far stronger if central clearing existed now for the swaps.

John Sprow, chief risk officer at Smith Breeden Associates, a fund management firm, said regulators could have used the relative calm in the markets over the last two years to reduce risks in places like the credit-default swap market. “There’s no doubt, that, by having central clearing, you’d mitigate counterparty risk,” he said.

Current DateTime: 01:37:02 29 Feb 2012
LinksList Documentid: 22528753A small number of credit-default swaps have moved onto clearinghouses, but not swaps on European sovereign debt , even though they are traded relatively frequently and lie at the heart of the Continent’s debt maelstrom.

The reason for the delay in Europe appears to reside with the Financial Services Authority, the British financial regulator. The regulator has yet to approve credit-default swaps on sovereign debt for clearing. The American-based IntercontinentalExchange [ICE  Loading...      ()   ] has said it is in a position to start doing so through a European arm. IntercontinentalExchange started clearing default swaps on Latin American government debt last year after it received approval from the Securities and Exchange Commission. The British regulator declined to comment.

Clearinghouses have played a major role in strengthening other parts of the derivatives market, like futures. When executing trades through a clearinghouse, market participants have to back up their deals with adequate collateral in case they suddenly cannot make payments. As a result, when a potentially destabilizing event happens, banks are less likely to panic, because they believe money they are owed on trades will be paid.

With Greece moving toward default, all eyes are on how credit-default swaps will behave. One worry is that they may not pay out, even when bondholders suffer a loss. While the Greek bailout package could force investors to take a 70 percent haircut on the country’s bonds, the restructuring was set up as a potentially voluntary exchange, an outcome that would not prompt the credit-default swaps.

But a voluntary exchange looks increasingly unlikely. Greece is preparing to use legal means to force all qualifying bondholders to accept a haircut.

Now, industry officials will have to decide whether the credit-default swaps will pay out.

This week, an undisclosed entity officially asked the International Swaps and Derivatives Association to debate whether a particular feature of the Greek debt exchange could activate the swaps. The association said Tuesday that a committee would consider this question on Thursday.

One part of the Greek exchange being examined allows the European Central Bank to avoid a haircut on the Greek bonds it holds, even though other creditors take a hit. In effect, the committee has to decide whether this constitutes the type of “subordination” for non-ECB bondholders that would prompt a payout on Greek credit-default swaps. Subordination describes the process of relegating a creditor’s claim below that of others.

Rating agencies have already said that the European Central Bank’s move amounts to economic subordination for bondholders. But some lawyers don’t think it will cause the default swaps to pay out, since subordination is narrowly defined in the swaps’ contracts.

“I can’t see any legal event that would also be a credit event,” said Simon Firth, a partner at Linklaters in London. A required payout would most likely happen if a bond issuer actually changed the terms of some existing bonds to make them subordinate, he said, and he added that shielding the central bank from losses did not appear to do this.

Still, some analysts say they believe that such a move would undermine the credibility of credit-default swaps. “It may result in investors deciding it’s just too uncertain to enter into CDS,” said Peter Green, a partner with Morrison & Foerster in London.

This story originally appeared in The New York Times

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NetNet: Can America Become the Next Greece?

When conservatives worry about the size of the federal government’s budget deficits and the national debt , liberals tend to point out that “America is not Greece.”

This is certainly true. The U.S. economy is far healthier than the economy of Greece. We aren’t locked into a currency union that deprives us of monetary flexibility. Our government can never run out of money to service its debt because the debt is denominated in currency the government creates.

The most important difference between the U.S. and Greece, however, is not where we are in our economic cycle or our monetary system.

It’s the gap between the productivity of the American economy and the Greek economy.

The core reason why Greece is unable to service its debt without aid from its neighbors is that its economy does not generate enough wealth. Even if Greece somehow put an end to the habitual tax-avoidance of its people, it could not service its debt without truly impoverishing its citizens through unsustainable wealth confiscation.

The dearth of productivity and competitiveness explains, ironically, why Greece’s debts got so large to begin with. It’s people and government wanted to live beyond their means, to spend more than they produced. This is only possible if someone is willing to lend you the money to buy the excess goods and services.

Most Greeks never really realized how unproductive their economy had become. In some sense, access to debt had concealed their long-running economic slump. It seemed that things were humming along just fine.

This is one of the reasons Greeks are so shocked by what is being required by their creditors. It feels as if they are being looted, bossed around, sent orders from German and French bureaucrats. The Greeks just never internalized how dependent their economy had become on the capacity and willingness of more productive economies to lend to them.

The productivity gap, of course, is not the result of nature or the wrath of some angry gods. It is the result of years of policies that made investing in productivity — both through capital investment and increases in skills — irrational. The generosity of the Greek government and the regulatory burdens placed on businesses made the relative rewards from business investment meager.

This is important to keep in mind when considering the proposition that “America is not Greece.” It tells us we must zealously guard our productivity, protect our culture of competition and enshrine market processes almost as if they were the gifts of benevolent gods.

America is not Greece. But if our productivity is sapped by too much regulation, by misbegotten monetary policy, by taxes that undermine incentives to earn, or by government spending that rewards business meeting political rather than market demand, we can become Greece.

America can never be forced to default for lack of money. But our debt burden can become unsustainable — requiring either inflation or voluntary default — if our productivity does not improve as our debt grows.

Follow John on Twitter.  (Market and financial news, adventures in New York City, plus whatever is on his mind.)  You can email him atdocument.write("");document.write("john.carney"+"@"+"nbcuni.com");document.write(''); .

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Greece Readies Debt Swap Under Bailout Deal

Greece's parliament will endorse a debt swap with private bondholders on Thursday to help reduce the country's debt and secure an international bailout, despite new protests against the tough terms of the deal.

The swap, in which private investors exchange their bonds for lower-value debt , will slice 100 billion euros ($132 billion) off Greece's debt, a vital part of the EU and IMF rescue plan aimed at cutting Greece's liabilities from 160 percent of gross domestic product to 120.5 percent by 2020.

Greece's second bailout since 2010 was approved by euro zone finance ministers on Tuesday, averting the immediate threat of bankruptcy next month but doing little to allay deep doubts about the country's long-term financial and social stability.

The debt swap bill passed the committee stage in parliament on Wednesday as several thousand trade unionists, pensioners and communists marched through central Athens against cuts to wages, pensions and jobs, required by the European Union and International Monetary Fund to trigger the funds.

Doctors and health workers joined the wave of public anger on Thursday, launching a 24-hour strike over pay cuts and calling a protest outside the Health Ministry.

Hospitals were maintaining a minimum level of service.

"We condemn the policy of the government, the EU and the IMF, which is demolishing the state healthcare and killing its personnel," hospital doctors from Athens and the port city of Piraeus said in a statement.

Lawmakers are expected to adopt the debt swap bill in plenary session on Thursday.

The government says the offer must be made to bondholders by Friday and completed by March 12, before a March 20 deadline when 14.5 billion euros of debt repayments fall due.

Private investors holding some 200 billion euros of Greek bonds will take a loss of 53.5 percent in the face value of their holdings.

The legislation says investors get at least 10 days to consider the transaction and creates so-called "collective action clauses" (CACs), which force all bondholders to proceed with the swap once it has won a specified level of approval.

According to the draft law, the swap will go ahead once a 50 percent quorum of bondholders have responded to the offer and the CACs will be activated once a two-thirds majority of that quorum have voted in favour of the swap.

Skepticism

The austerity measures have plunged Greece ever deeper into recession and driven unemployment up over 20 percent. Half of young Greeks are jobless.

The bailout deal buys time to stabilise the 17-nation euro zone currency bloc and strengthen its financial protection against a messy Greek default, which is a long-term threat.

Credit ratings Fitch on Wednesday downgraded Greece further to C from CCC.

The move was expected as Greece passes into technical default on its liabilities once the debt swap transaction is completed.

The euro zone, and particularly its northern members led by EU paymaster Germany, are deeply sceptical that Greek leaders will stick to the painful spending cuts and reforms after an election pencilled in for April.

Greece must adopt a raft of laws on the austerity package in the coming days to clinch the funds.

Officials from the International Monetary Fund said the lender was weighing up the size of its contribution given that Athens is near the limits of what it is allowed to borrow.

European and IMF sources have told Reuters the lender could contribute 13 billion euros in new money on top of 9.9 billion still unpaid from the first bailout.

The United States, the biggest contributor to the IMF, welcomed the bailout deal, but said on Wednesday that Europe should do more to prevent any risk of contagion.

"We believe that the IMF should continue to play a constructive role in Europe, but IMF resources cannot be a substitute for a strong and credible firewall," Lael Brainard, the U.S. Treasury Department's under secretary for international affairs, said before a Group of 20 meeting this weekend.

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RBS Records $1.2 Billion Loss After Greece Charges

Royal Bank of Scotland, the state-backed British bank, recorded a pre-tax loss of 766 million pounds ($1.2 billion) for 2011 Thursday, but said it would continue to pay bonuses.

The Royal Bank of Scotland Headquarters

The bank, which is 82 percent owned by UK taxpayers, was hit by charges of 850 million pounds for the payment protection insurance scandal in which it mis-sold insurance. It took another 1.1 billion pounds in charges over its exposure to Greece debt.

The loss is less than the 1.2 billion pounds forecast by Deutsche Bank. Its core Tier 1 ratio was 10.6 percent, indicating that it should not need to raise more money to meet new European banking regulations. Operating profit for 2011 was 1.9 billion pounds, up 11 percent from 2010.

Chief Executive Stephen Hester, who decided to turn down his bonus last month after pressure from politicians and the public, was parachuted in to the bank in 2008 after it was part-nationalized.

Since then, 34,000 jobs have been cut and the bank has been refocused on retail banking.

Investment bankers were still paid 2.45 billion pounds in 2011 – down 9 percent from the previous year.

The total "variable compensation" awarded to investment banking employees in 2011 was 390 million pounds, down 58 percent from 2010. This represented around 23,000 pounds per employee in the investment bank. Total "variable compensation" for the bank's workers was 785 million pounds, down 43 percent from the previous year.

Many of RBS' [RBS-LN  Loading...      ()   ] problems are ascribed to rapid expansion under Sir Fred Goodwin, who left the bank in 2008. The purchase of ABN Amro at the height of the market in 2007 is often cited as the key to RBS’s poor subsequent performance.

Barclays has also slashed its bonus pool to around 1.5 billion pounds for its investment bank, although the size of Chief Executive Bob Diamond’s remuneration package has not been announced.

Antonio Horto-Osario, Hester’s counterpart at Lloyds, has announced he won’t take a bonus this year.

Hester said: “We have three jobs at RBS - to support our customers, to defuse our legacy risks and to rebuild a successful profitable bank. In 2011 we showed results across all three goals, though with much still to do.”

Philip Hampton, chairman of RBS, said: “The job of rebuilding the Group is far from complete. The need to address the legacy of losses in a number of businesses means that the Group is not yet profitable.”

He added: “I understand people's anger and anxiety about inequalities in pay at a time when the economy is weak and many people are finding things tough. RBS alone cannot fix these wider issues if we are to achieve what is asked of us commercially. But we have led the way in changing how we pay our people.”

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Fitch Cuts Greece, Near-Term Default ‘Highly Likely’

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'Greece Fatigue': Market Hopes Bailout Plan Will Work

Now that Greece has some semblance of a default plan in place, investors might be able to start concentrating again on other financial market influences.

Louisa Gouliamaki | AFP | Getty ImagesProtersters gather in front of the Greek parliament under rainfall during the 48-hours anti-austerity strike.Maybe.

News that the troubled Club Med outpost had put together a deal with the vaunted Troika appeared to give a lift to the already-surging U.S. stock market, which pushed past the psychological 13,000 barrier in intraday trading for the first time in four years.

Or maybe it was continued enthusiasm about the mild economic recovery, or the improvement in earnings.

In any event, markets began to provide indication that the financial world may not revolve around Greece, at least for a little while.

"There is a lot of Greece fatigue," says Kim Rupert, managing director of global fixed income analysis for Action Economics in San Francisco. "We're really tired of this news story and the headlines. But it's not out of the picture."

While many traders parsed 2011 action in the either-or function of risk-on or risk-off, they may as well have been talking about Greece-on or Greece-off. If it looked as though the Troika — the European Central Bank, International Monetary Fund and the European Commission — had developed yet another rescue plan, markets were up. If it looked like Greece was ready to fail and bring the rest of the developed world with it, markets fell.

With a plan that at least stops the bleeding for a while, hopes are that the market can get back to its normal worries of war in the Mideast, the political turmoil in Washington, and the precarious state of the economic rebound.

"No matter what happens I think that all Greece events are priced into the markets," says Peter J. Tanous, president of Lepercq Lynx Investment Advisory in Washington, D.C. "No 'unknown unknowns' here. The U.S. market will continue to be primarily influenced by the economic recovery."*

Like many others, he sees a full Greece default and exit from the euro zone as inevitable. Until then, though...

"Greece still matters," says Athanasios Vamvakidis, forex strategist at Bank of America Merrill Lynch.

Vamvakidis maps out several scenarios in which investors, while seeking to move past the sovereign debt crisis for the time being, will have to revisit things in the future.

"Greek euro exit could have systemic implications for the eurozone," he writes in a research note. "The eurozone could be stronger without its weakest link, which is Greece in our view, but breaking of the eurozone’s weakest link still poses substantial risks."

In particular, if Greece exits and renews the drachma it could lead to "a bank run, uncontrollable inflation, and potentially severe social unrest."

"Allowing such a scenario to unfold in Greece while the rest of the region is still in the beginning of their reform process could jeopardize their chances of success and trigger renewed funding pressures, as a euro exit becomes possible."

Ultimately, as Vamvakidis sees it, this could be just the latest in a series of last chances for Greece to get its act together.

"In this contest, we expect the Troika to try to give Greece one more chance with a new program, although whether they will succeed is more uncertain than ever," he says. "If the rest of the region has enough time to adjust, an eventual failure of the new Greek program may not have broader market implications. In the meantime, however, we expect markets to continue being concerned about a disorderly Greek default, with negative EUR [euro] implications."

Indeed, the early verdict closer to the Greek mainland wasn't so good.

European equity markets fell modestly, while Greek stocks specifically dropped more than 5 percent.

Bob Janjuah, the longtime bearish fixed income analyst at Nomura Securities, says he has lumped Greece into the "self-serving political debacle" file, with the possibility that central bank intervention will keep financial markets afloat well into the future, but with dire long-run circumstances.

"Depending on how long we can continue to kick the can down the road in order to protect the eurozone banks, the eurozone will be consigned to an extended period of weak growth, which in turn means ever decreasing debt sustainability," Janjuah says.

Interestingly, Janjuah has a Standard & Poor's 500 [.SPX  Loading...      ()   ] target as low as 800 or even 700 in a worst-case scenario, but says the index could zoom higher first, perhaps even to the "high 1500s."

And Charles Biderman, CEO at the TrimTabs market research firm, says he expects this supposed Greek solution to meet with a similar fate as the others.

"Amid the good news on the emerging-markets front, we can’t ignore the simmering troubles in Greece, where a settlement on austerity measures appears unlikely to be of much help to the stock market, if past rescue measures are any guide," he writes.

"Going back to 2010, each major attempt to bail out Greece has been followed by significant declines in stock prices, and with the markets in the midst of a three-month rally, it seems likely that investors will cash in their profits."

*(Major disclosure: Peter and I co-authored Debt, Deficits and the Demise of the American Economy (Wiley, 2011) that correctly foresaw the Greek default and the ensuing ramifications it will have across Europe and, ultimately, the U.S.)

Questions? Comments? Email us atdocument.write(""); document.write("NetNet"+"@"+"cnbc.com");document.write('');

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'Greece Fatigue': Market Hopes Bailout Plan Will Work

Now that Greece has some semblance of a default plan in place, investors might be able to start concentrating again on other financial market influences.

Louisa Gouliamaki | AFP | Getty ImagesProtersters gather in front of the Greek parliament under rainfall during the 48-hours anti-austerity strike.Maybe.

News that the troubled Club Med outpost had put together a deal with the vaunted Troika appeared to give a lift to the already-surging U.S. stock market, which pushed past the psychological 13,000 barrier in intraday trading for the first time in four years.

Or maybe it was continued enthusiasm about the mild economic recovery, or the improvement in earnings.

In any event, markets began to provide indication that the financial world may not revolve around Greece, at least for a little while.

"There is a lot of Greece fatigue," says Kim Rupert, managing director of global fixed income analysis for Action Economics in San Francisco. "We're really tired of this news story and the headlines. But it's not out of the picture."

While many traders parsed 2011 action in the either-or function of risk-on or risk-off, they may as well have been talking about Greece-on or Greece-off. If it looked as though the Troika — the European Central Bank, International Monetary Fund and the European Commission — had developed yet another rescue plan, markets were up. If it looked like Greece was ready to fail and bring the rest of the developed world with it, markets fell.

With a plan that at least stops the bleeding for a while, hopes are that the market can get back to its normal worries of war in the Mideast, the political turmoil in Washington, and the precarious state of the economic rebound.

"No matter what happens I think that all Greece events are priced into the markets," says Peter J. Tanous, president of Lepercq Lynx Investment Advisory in Washington, D.C. "No 'unknown unknowns' here. The U.S. market will continue to be primarily influenced by the economic recovery."*

Like many others, he sees a full Greece default and exit from the euro zone as inevitable. Until then, though...

"Greece still matters," says Athanasios Vamvakidis, forex strategist at Bank of America Merrill Lynch.

Vamvakidis maps out several scenarios in which investors, while seeking to move past the sovereign debt crisis for the time being, will have to revisit things in the future.

"Greek euro exit could have systemic implications for the eurozone," he writes in a research note. "The eurozone could be stronger without its weakest link, which is Greece in our view, but breaking of the eurozone’s weakest link still poses substantial risks."

In particular, if Greece exits and renews the drachma it could lead to "a bank run, uncontrollable inflation, and potentially severe social unrest."

"Allowing such a scenario to unfold in Greece while the rest of the region is still in the beginning of their reform process could jeopardize their chances of success and trigger renewed funding pressures, as a euro exit becomes possible."

Ultimately, as Vamvakidis sees it, this could be just the latest in a series of last chances for Greece to get its act together.

"In this contest, we expect the Troika to try to give Greece one more chance with a new program, although whether they will succeed is more uncertain than ever," he says. "If the rest of the region has enough time to adjust, an eventual failure of the new Greek program may not have broader market implications. In the meantime, however, we expect markets to continue being concerned about a disorderly Greek default, with negative EUR [euro] implications."

Indeed, the early verdict closer to the Greek mainland wasn't so good.

European equity markets fell modestly, while Greek stocks specifically dropped more than 5 percent.

Bob Janjuah, the longtime bearish fixed income analyst at Nomura Securities, says he has lumped Greece into the "self-serving political debacle" file, with the possibility that central bank intervention will keep financial markets afloat well into the future, but with dire long-run circumstances.

"Depending on how long we can continue to kick the can down the road in order to protect the eurozone banks, the eurozone will be consigned to an extended period of weak growth, which in turn means ever decreasing debt sustainability," Janjuah says.

Interestingly, Janjuah has a Standard & Poor's 500 [.SPX  Loading...      ()   ] target as low as 800 or even 700 in a worst-case scenario, but says the index could zoom higher first, perhaps even to the "high 1500s."

And Charles Biderman, CEO at the TrimTabs market research firm, says he expects this supposed Greek solution to meet with a similar fate as the others.

"Amid the good news on the emerging-markets front, we can’t ignore the simmering troubles in Greece, where a settlement on austerity measures appears unlikely to be of much help to the stock market, if past rescue measures are any guide," he writes.

"Going back to 2010, each major attempt to bail out Greece has been followed by significant declines in stock prices, and with the markets in the midst of a three-month rally, it seems likely that investors will cash in their profits."

*(Major disclosure: Peter and I co-authored Debt, Deficits and the Demise of the American Economy (Wiley, 2011) that correctly foresaw the Greek default and the ensuing ramifications it will have across Europe and, ultimately, the U.S.)

Questions? Comments? Email us atdocument.write(""); document.write("NetNet"+"@"+"cnbc.com");document.write('');

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Follow NetNet on Twitter @ twitter.com/CNBCnetnet

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View the original article here

'Greece Fatigue': Market Hopes Bailout Plan Will Work

Now that Greece has some semblance of a default plan in place, investors might be able to start concentrating again on other financial market influences.

Louisa Gouliamaki | AFP | Getty ImagesProtersters gather in front of the Greek parliament under rainfall during the 48-hours anti-austerity strike.Maybe.

News that the troubled Club Med outpost had put together a deal with the vaunted Troika appeared to give a lift to the already-surging U.S. stock market, which pushed past the psychological 13,000 barrier in intraday trading for the first time in four years.

Or maybe it was continued enthusiasm about the mild economic recovery, or the improvement in earnings.

In any event, markets began to provide indication that the financial world may not revolve around Greece, at least for a little while.

"There is a lot of Greece fatigue," says Kim Rupert, managing director of global fixed income analysis for Action Economics in San Francisco. "We're really tired of this news story and the headlines. But it's not out of the picture."

While many traders parsed 2011 action in the either-or function of risk-on or risk-off, they may as well have been talking about Greece-on or Greece-off. If it looked as though the Troika — the European Central Bank, International Monetary Fund and the European Commission — had developed yet another rescue plan, markets were up. If it looked like Greece was ready to fail and bring the rest of the developed world with it, markets fell.

With a plan that at least stops the bleeding for a while, hopes are that the market can get back to its normal worries of war in the Mideast, the political turmoil in Washington, and the precarious state of the economic rebound.

"No matter what happens I think that all Greece events are priced into the markets," says Peter J. Tanous, president of Lepercq Lynx Investment Advisory in Washington, D.C. "No 'unknown unknowns' here. The U.S. market will continue to be primarily influenced by the economic recovery."*

Like many others, he sees a full Greece default and exit from the euro zone as inevitable. Until then, though...

"Greece still matters," says Athanasios Vamvakidis, forex strategist at Bank of America Merrill Lynch.

Vamvakidis maps out several scenarios in which investors, while seeking to move past the sovereign debt crisis for the time being, will have to revisit things in the future.

"Greek euro exit could have systemic implications for the eurozone," he writes in a research note. "The eurozone could be stronger without its weakest link, which is Greece in our view, but breaking of the eurozone’s weakest link still poses substantial risks."

In particular, if Greece exits and renews the drachma it could lead to "a bank run, uncontrollable inflation, and potentially severe social unrest."

"Allowing such a scenario to unfold in Greece while the rest of the region is still in the beginning of their reform process could jeopardize their chances of success and trigger renewed funding pressures, as a euro exit becomes possible."

Ultimately, as Vamvakidis sees it, this could be just the latest in a series of last chances for Greece to get its act together.

"In this contest, we expect the Troika to try to give Greece one more chance with a new program, although whether they will succeed is more uncertain than ever," he says. "If the rest of the region has enough time to adjust, an eventual failure of the new Greek program may not have broader market implications. In the meantime, however, we expect markets to continue being concerned about a disorderly Greek default, with negative EUR [euro] implications."

Indeed, the early verdict closer to the Greek mainland wasn't so good.

European equity markets fell modestly, while Greek stocks specifically dropped more than 5 percent.

Bob Janjuah, the longtime bearish fixed income analyst at Nomura Securities, says he has lumped Greece into the "self-serving political debacle" file, with the possibility that central bank intervention will keep financial markets afloat well into the future, but with dire long-run circumstances.

"Depending on how long we can continue to kick the can down the road in order to protect the eurozone banks, the eurozone will be consigned to an extended period of weak growth, which in turn means ever decreasing debt sustainability," Janjuah says.

Interestingly, Janjuah has a Standard & Poor's 500 [.SPX  Loading...      ()   ] target as low as 800 or even 700 in a worst-case scenario, but says the index could zoom higher first, perhaps even to the "high 1500s."

And Charles Biderman, CEO at the TrimTabs market research firm, says he expects this supposed Greek solution to meet with a similar fate as the others.

"Amid the good news on the emerging-markets front, we can’t ignore the simmering troubles in Greece, where a settlement on austerity measures appears unlikely to be of much help to the stock market, if past rescue measures are any guide," he writes.

"Going back to 2010, each major attempt to bail out Greece has been followed by significant declines in stock prices, and with the markets in the midst of a three-month rally, it seems likely that investors will cash in their profits."

*(Major disclosure: Peter and I co-authored Debt, Deficits and the Demise of the American Economy (Wiley, 2011) that correctly foresaw the Greek default and the ensuing ramifications it will have across Europe and, ultimately, the U.S.)

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Greece Deal Will Only Last Until Next Election: Gartman

Greece’s purported deal with its creditors will last only until a new government takes over following the spring elections, hedge fund manager Dennis Gartman said Tuesday.

While investors hoped the deal, valued at 130 billion euros ($172 billion) would bring stability to the debt-plagued nation, Gartman said the provisions — particularly those focused on reducing the ratio of debt to gross domestic product , as well as the austerity measures imposed on Greece — have little chance of being met.

“All the authorities have been able to do is delay default by a few weeks, perhaps a few months at best,“ Gartman wrote in his investor newsletter. “Greece will default, but perhaps not under the present government in power.”

Sharp cuts in the minimum wage, health care, and pensions, among other things, never will be tolerated in the Greek street, he added. Greeks go to the polls in two months to decide their government’s future. Recent polls show leftist parties opposing the bailouts rising in popularity.

“A new government is going to come to power following elections that shall take place sometime this spring, and if anyone anywhere believes that the next Greek government shall do anything other than abrogate all the agreements made with the ‘troika,’ then we have a bridge we’d like to sell them at a very high price,” Gartman said.

The so-called troika — the European Central Bank , International Monetary Fund , and the European Commission — hammered out a deal that will cut the principal on Greek bonds and provide a substantially lower yield. Debt haircuts are likely to exceed 70 percent.

At the same time, the austerity measures aim to reduce the debt-to-GDP ratio to 120 percent by 2020, a target Gartman labeled “comical” in that it will be impossible to estimate the level of debt burden eight years from now.

Full agreement from European Union members also is far from a certainty.

Analysts at Nomura Securities questioned whether Finland and Denmark in particular would sign on.

“The fact that the agreement was reached is a positive development in that it prevents an immediate disorderly default,” Nomura said. “However, the deal still needs to be signed by euro-area parliaments. It is not a done deal and there is significant risk surrounding the Finnish and the Dutch vote.”

For Gartman, though, the risk goes further.

Recession soon will morph into depression, he said, as the country simultaneously seeks to grow its economy while tightening its fiscal policy, leading to a “sense of desperation” among Greeks who resent the burdens the euro nations, particularly Germany, are imposing.

One Greek tabloid ran a headline Tuesday that translated to “130 billion in chains.”

“It  has come to this: Greece and Germany are effectively at war,” Gartman said.

From an investor standpoint, he is advising his clients to sell the euro, which had strengthened against global currencies earlier but turned negative as morning trade progressed.

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