Second bailout secured!

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It took more than six months of negotiation but, eventually, Lucas Papademos managed to coax his technocrat cabinet through every one of the hoops put up by EU leaders and Greece secured its second bailout . There were times when investors seriously wondered if the German chancellor was trying to set the bar so high that Greece would trip and fall. Nevertheless, the Bundestag has now given its approval to Germany's contribution to the €130bn loan that Greece will draw down over the next couple of years - as long as it continues to toe the line with spending cuts, privatisations, reforms and austerity.

Another plus for the euro was the second round of the European Central Bank's Long Term Refinancing Operation, by which it lends three-year money at a very low interest rate to Euroland's commercial banks. Through it, the ECB provides the liquidity that banks would normally pick up in the interbank market but cannot at the moment because they are not lending to one another. Before Christmas the first Long-Term Refinancing Operation (LTRO) gave €489bn to 500 banks. In the latest - and possibly final - round 800 banks absorbed €529bn. The action reduces - maybe even dispels - the risk of a euro zone credit crunch.

For the euro today then, God's in his heaven and all's well with the world. But there is a bit of a question mark over the second part of that. There is a distinct - and understandable - lack of enthusiasm in Greece for the unvarying diet of cuts and austerity. Even though politicians attribute the riots, arson and vandalism (200 Athens traffic lights are among the casualties) to rogue elements and anarchists, they have an election to fight next month. There is less than 100% confidence among investors and EU leaders that an incoming government would pursue to the letter the conditions set out in the bailout agreement. And if they don't, the money will stop.

Doubt also attends the timing of the recovery implicit in the bailout. For it to work, the Greek economy should already be growing. It isn't. It is still shrinking, raising the fear that Bailout III might be necessary, or at least requested.

Even the LTROs have their detractors. The loans mature in three years' time. Will euro zone banks have the wherewithal to make repayment as soon as that? Or has the ECB just printed an extra trillion euros that it will be unable to cancel?

Despite these worries, the crisis fatigue that afflicts investors means they will probably be trying to look on the bright side for a while. As long as they manage to do so, the sterling/euro exchange rate could well potter along in the €1.19 - €1.21 range that has contained it for most of the last three months.

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