Markets volatile as Greece is still in Limbo

Markets still need convincing with details of Greek rescue. They still remember the Argentinian $100bn debt default in 2001-2002 preceded by similar statements to Greece that they had no plans to default on their debt or restructure it.

Merkel as with all EU politicians speaks with a forked tongue, one story in the cosy hidden confines of the EU and another for the home market. Unfortunately for the Dr Frau there is a tricky election coming up in Rhine Westphalia where the EU/IMF bailout is about as popular as Gordon Brown. Hence the German finance minister, Herr Schauble, is making tough noises about the outcome being 'negative' and wanting to see tougher terms with strings imposed on the Aid package.

Worse, Merkel's coalition 'partners' are questioning the wisdom and legality of the proposed aid package with the leader of the CSU group suggesting Greece should leave Euroland. Every politician knows his real enemies and problems are not with the opposition in front of him but with his 'friends' behind him.

The package will eventually be forced through as necessary to 'defend the stability of the Euro' but would only happen legitimately in extremis. Its difficult to get a motley crew of mid Europeans to agree on anything until the water gets up round their necks.

Meanwhile the markets are not buying the latest soothing noises coming out of the EU/IMF. Each headline that sows even the slightest doubt in the mind's of investors that any plan to help Greece is delayed or insufficiently sized pushes the currency ever lower. Greek bond rates remain unaffordable. Bets are building against other European nations such as Spain and Portugal, particularly in the credit default swaps market, which offers protection against defaults or restructuring.

Portuguese yield spreads over Bunds have doubled during April to hit 200 basis points, while Italian and Spanish spreads were at their highest since February. Rising debt costs for the other weak links in the euro zone have raised the spectre of even more bailouts. The need for a Greek fix grows more urgent by the day but all the 'crats offer is even more waffle. A UK hung parliament on 7th May could be the trigger that sets of the next crisis.