Beware the Greek hype

It has been quite a remarkable morning for the single currency, which is up 1% at 1.3250. Contributing to this latest spike is the dollar’s weakness across the board as it loses favour during this spurt of risk appetite. Other high-beta currencies such as the AUD, Kiwi and the NOK are also around 1% higher today. Once again, short-covering by hedge funds and traders has been a major factor behind today’s euro buying. In addition, the euro has benefitted from optimism that European finance ministers will get awfully close to finally signing an agreement on a second Greek bailout package. Even the German Finance Minister has apparently been quoted this morning claiming a deal is close, although privately he almost certainly remains very sceptical. German lawmakers were told late last week that officials were hoping to conduct the debt-swap transaction between February 22nd and March 9th.

As always, expressions of optimism prior to any meeting of European leaders these days should be heavily discounted as the result is almost always a huge disappointment. There are still so many issues outstanding that it would really be remarkable if they were resolved tonight. Because the amount of money required by Greece just keeps expanding there is now a suggestion that private sector bond-holders will need to accept an even larger haircut than the massive one they had signed up to just a couple of weeks ago. The ECB continue to argue that its bonds should be exempt from any haircuts, despite the IMF’s suggestion that they should. Moreover, this idea that somehow future ECB profits on its Greek bonds could magically be redistributed to the Greek government is at once both financial alchemy and taxpayer-robbery at its worst. Meanwhile, Greece is set to impose collective action clauses on all bonds should the voluntary swap fail to draw enough support from private sector bond-holders.

Greece remains a horror show and no amount of hype will change that reality. However, with investors more inclined to take on risk amidst positive economic news from most advanced economies, Greece is not spooking risk-takers like it did last year.