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Default Averted! Who Really Benefits from Greek Austerity Deal?

Jeff Macke

Earlier today, European officials announced a deal to cut €300 million from the Greek budget, thereby unlocking the €130 billion in bailout funds intended to prevent a catastrophic Greece default.

In the attached clip I discuss the latest Greek drama with savvy value investor Vitaliy Katsenelson, author of The Little Book of Sideways Markets. Count him among those dubious at the prospect of this being the last we hear of troubles in the EU. The anticipated agreement is "good news for Greece and good news for markets for the next couple days, but in the long term it really doesn't matter," says Katsenelson.

The deal not mattering is a bullish argument. The real question is why on earth the so-called "Troika" --the European Commission, the European Central Bank, and the International Monetary Fund-- would accept a deal hammering private investors with 70% losses on Greek debt and trigger aid over 400-times as large as the proposed budget cuts.

"Bailing out the Germans and keeping the Union together," were the dual motivations according to Katsenelson. Ripping apart the Union and going back to individual currencies would create a Deutsche Mark so richly valued relative to the rest of Europe that German exports would plunge. With Germany being the driver of the entire European economy, officials are willing to pay nearly any price to avoid a killing the German economy.

Any bailout for Greece amounts to a green light for other troubled countries. Already Ireland is demanding a sweetheart deal on their potential rescue, with other countries sure to follow their lead. Not that it much matters to officials who have spent years if not decades enabling economic idiocy on both an individual and national level.

When asked what comes next the normally genial investors "I don't know and I don't care."

Ultimately there must be austerity across the board and endless money printing to cover the debts. How we get there from here is just noise.

So we haven't heard the end of Europe, which is disheartening, but at least the story seems to have moved forward from perpetually pending status. At this point we'll all take what we can get.

Will this latest deal keep the market rally going? Let us know in the comment section below or send me a Tweet @jeffmacke.