Greek debt has rallied on the news that the EU and the IMF are close to agreement on a €120 billion ($159 billion) rescue package. Other PIIGS sovereign debt is also getting a breather. This has been the pattern throughout the crisis: there's some positive development, there's a rally, and then everyone remembers that Greece is still anchored right smack in between of Scylla and Charybdis, and yields shoot back up again.
The idea of the bailout is to prevent contagion to other countries. But will it? In a way, the Greek rescue package makes it less likely that anyone else is going to get help from their eurobrethren. The IMF and the constituent governments only have so much money that they can pour into Club Med, and Greece is taking really quite a lot of it. Forget Spain, which is too large for anyone to launch a Greek-style rescue; even Portugal will be a stretch.
Maybe this calms markets and stops the crisis here. But governments are overstretched as it is, and this just makes the problem worse. We may have found some institutions that are Too Big Not to Fail.
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