Today Greece will attempt to issue €1.2bn of short term 6 and 12 month t-bills and will be a critical test of the markets' faith in the EU / IMF rescue plan. This will be the first test of the markets appetite since the EU formally layout the terms of aid, should Greece request emergency funding. Initially, the markets were very optimistic on the agreement, with the EURUSD climbing to 1.3692, while Greek CDS are sharply lower, now trading below Iceland's. However, further examination of the Greek bailout plan has produced more questions than answers, causing erosion in confidence. One point is the proposal that Greece will be charged around 5% which is clearly below market's rates. Given that any bailout will need a unanimous EU vote, it's unknown whether Germany will provide the necessary parliamentary votes given the subsidized rate. The closer Germany gets to Election Day the more likely politicians will use the public's well publicized resentment towards helping any fiscally irresponsible neighbors as a campaign tool, decreasing the probability of a positive vote. Another concern is if Greece will be able to adhere to it strict austerity plan. And if Greece and other fiscally troubled EU nation actually do adhere to their austerity plans, the overall effect on EU growth will be negative. Another issue will be the speed which the funds could be released. Will an EU summit need to take place or just permission from all countries Finance Minister (the former will trigger a German parliamentary vote)? Our overall feeling is this is still a historical moment for the EU and baring some ironing out, it will be in the short-term EUR positive.

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