Across Europe, traders’ screens were a sea of green today, with Greece—of all places—glowing brightest. Greek stocks and bonds rallied big on news that (finally, mercifully) the country may be close to agreeing a deal to extend its bailout agreement.
Euro zone finance ministers met in Brussels to consider a revised set of reform proposals from Athens in return for much needed funds. A deal could be sealed as early as this week, finance ministers suggested, sparking a late rally in markets across Europe. Heads of euro zone governments are also meeting today, in a hastily arranged session ahead of a full EU summit that begins on Thursday (June 25).
The clearest indication that the markets sense a deal can be seen in Greek banks—the banking sector index in Athens jumped more than 20% today (while the broader market rose by 9%). Still, Greek stocks remain in the red for the year:
If Greece’s bailout program is allowed to expire at the end of June, the European Central Bank could pull the plug on the country’s banks. Anxious savers have been withdrawing deposits from Greek banks en masse in recent weeks, and without emergency liquidity support from the ECB these banks would collapse. This would probably be the event that triggers “Grexit,” or Greece’s exit from the euro zone.
That’s why investor sentiment about the Greek banking sector—which is wholly dependent on a new bailout deal—serves as one of the better gauges of where we stand on the negotiations. The banking index’s biggest one-day gain of the year is encouraging in this regard:
But good luck finding any patterns in that mess. In a way, then, it serves as the perfect gauge of the Greek negotiations, a perpetual see-saw cycle of hope and despair. Until the key players put pen to paper, anything can happen.