Greek Deal Causes Celebration at European Banks--For Now

Tear gas is flowing and buildings are burning in Greece while bankers rejoice. The riots and rallies are thanks to Greek policymakers, who have finally agreed on an austerity package that will help it avoid a default on its roughly €330 billion euros of outstanding debt. An agreement means that the EU and IMF will give the beleagured and indebted Mediterranean state €130 billion in bailout funds. The news bolstered European markets and the euro, with the FTSE 100 (LON: ^FTSE) up over a percent and the DAX up around three quarters of a percent. Almost all European banks were up. Credit Suisse

was up 1.23 percent in morning trading, UBS

rose over 2.3 percent, and Deutsche Bank

is up around 1.5 percent. Asian markets had been falling in early Monday trading, but rose on news of the Greek vote, with Australian markets up nearly a percent in Sydney. The global optimism is thanks to hope that the Greek deal means that equity markets can move on and focus on other issues besides the troubled Mediterranean state. However, Greece isn't out of the woods quite yet. The Greek 10 year bond is actually up slightly in early trading and is still above 36 percent. Portgual's bond market has improved, with the country's 10-year benchmark falling by 0.2 percent to 11.78 percent. Not all investors are excited at the Greek deal. Speaking to the Wall Street Journal, Commerzbank currency analyst Lutz Karpowitz said that political uncertainty may mean that this deal is short lived. "Considering the explosive situation in Greece it would hardly come as a surprise if those opposing the reforms were to take control of the country in April. In that case everything would start all over again, as each tranche of the bailout package has to be released individually. Should the violence increase, the euro might be put under pressure," he said, according to the

. Such pessimism is not stopping a financial stock rally in Europe, as the markets interpret the news from Greece. Many bankers are probably seeing the results in two ways: firstly, fears of a default on Greek banks and the massive losses that European banks would face are dissipating as the ECB will support the Greek government in exchange for the approved austerity plan. Secondly, greater liquidity will mean the free flow of cash and greater availability of credit, which will give European markets a much needed boost. The confidence that the Greek deal inspires may be short lived. We've been here before many times; hope on a Greek deal boosts markets, but after the euphoria rush, investors remember just how indebted the Mediterranean economy is. Worse still, the recent political panic and stern intervention from the north is a reminder of just how fragile the political union of a European federation is. Northern economies remain very different from southern economies. Germany still profits from the EU more than

. Before the Euro, Greece (as well as other Mediterranean countries) could make themselves competitive in the export market by manipulating their currency. With the euro, that is no longer an option, which is partly why Germany's export economy has boomed, whether it's

or

. Last year, German exports grew to

. Since the advent of the euro, Greek exports have risen by around 113% and German exports have risen by about 150%, according to data from

. The recent Greek crisis may be resolved today, but it might not be tomorrow, and structural problems remain in the tentative and radical economic experiment known as the European Union. European financial firms, especially the European banks that invested in them, are as volatile as they are exposed to the EU's fate, and while bulls are happy today, bears may be around the corner while the currency federation remains an uncertain proposition.