The European Union approved the disbursement of it's last $17 billion tranche of bailout funding Saturday, putting Greece's debt crisis at bay -- for now.

With the last part of the $156 billion bailout package in place, the struggling nation will be able to keep functioning for a little while longer. The disbursement, which will be made by July 15, follows the Greek Parliament's approval of new austerity measures.

This latest piece is the fifth tranche of a bailout that was approved by members of the European Union last year.

"The Greek authorities provided a strong commitment to adhere to the agreed fiscal adjustment path, and to the growth-enhancing structural reform agenda, which are essential components of our strategy to restore fiscal sustainability and safeguard financial stability," ministers said in a statement Saturday.

European officials will now work on a second proposed bailout.

The bailout is a highly contentious subject in Greece. As the Greek Parliament voted in favor of the funding on June 28, thousands of protesters descended on Athens and clashed with riot police. Tear gas choked the streets as protesters and police pounded each other with clubs and firebombs.

Greece: Back from the brink - for now

However, the bailout won't take care of the nation's long-term budget problems, according to Mark Blyth, an economics professor at Brown University in Providence, R.I.

"This is simply giving them more breathing space, while they're kicking the can down the road," Blyth said, referring to the bailout. "They need to have enough money to cover the primary fiscal debt, and for keeping the lights on at the hospitals and military bases. Once they've got that, they're able to default without shutting down the country."

Blyth believes that a Greek default is inevitable. "Ultimately, there's no way the Greeks can pay back what they've borrowed," he said.

The debt-ridden nation has "heavy near-term financing requirements," according to S&P, with about $135 billion in government debt maturing between now and the end of 2013. An additional $82 billion is set to mature in 2014.

Still, the rest of Europe does not want Greece to default, because it would rupture the bond market and undermine the European banking system so severely that the repercussions could be felt on Wall Street.

Greek austerity: Cure or poison?

The French banking association and the German Finance Ministry, as well as German banks, have offered proposals to keep the Greeks from defaulting on $152 billion worth in bonds.
These proposals offer different variations on the same theme: rolling over Greek debt. As explained by Barclays (BCS), one of the options is to roll the debt into a 30-year bond, with at least 70% backed by private sector investors.

For the Greeks, there is one part of their future that is crystal clear: more austerity. In order to qualify for the final tranche of the bailout, the Greek Parliament had to agree to a new raft of austerity measures, in addition to the ones that were imposed on the Greek people last year. This is why people were rioting in the streets of Athens.

Since 2010, the Greeks have faced a myriad of austerity measures including pension cuts, a boost to the sales tax, excise taxes on fuel, cigarettes, alcohol and luxury goods, more stringent eligibility for disability benefits, and a hike in the retirement age to 65 from as low as 61.
On June 29 and 30, the Greek Parliament approved a new raft of austerity measures that included reducing the pay of public workers, increasing the attrition of public jobs and ramping up taxpayer compliance.

Tax dodging, in particular, is one of the most chronic fiscal problems in Greece. Many of the protesters in Athens blame rich tax evaders for their nation's troubles. The protesters -- particularly the young and unemployed -- believe they're being forced to shoulder an unfair burden to get their country out of hock.

The pain of Greece's crisis

Marko Mrsnik, the lead analyst in the recent Standard & Poor's downgrade of Greece, blames the austerity measures for exacerbating the shoddy job market. The unemployment rate has soared to 16.2%, compared to 11.6% in March 2010, he said.

The contradiction of the austerity measures is that they're harming the economy even as they're keeping it afloat, according to Jurgen Odenius, a strategist for Prudential Fixed Income.

Greece has pulled itself back from the brink, by agreeing to a painful austerity package aimed at reducing the country's giant budget deficits.

On Thursday, the Parliament voted to implement those unpopular reforms. The vote set the stage for the nation to secure the final $17 billion of a $156 billion international relief package.

The latest cash infusion means Greece will be able to stave off an immediate default and pay its bills for the next three months.

But Greece is not out of the woods. The country still needs to put the unpopular reforms into practice, negotiate with creditors and privatize big public institutions.

Passage of the austerity plan "will certainly give some short-term relief to markets," said IHS Global senior economist Diego Iscaro. "But concerns about the long-term feasibility of Greece's fiscal plans still remain in place."

Greece is now expected to begin negotiations with the European Union and International Monetary Fund for another bailout, said Wolfango Piccoli, a director at the Eurasia Group in London.

The next round of emergency aid is expected to range between $172 billion and $216 billion, which would cover Greece's expenses through 2014, he said.

As with the previous deal, the new package will come with conditions. The terms are expected to include some concessions by Greece's creditors and the transfer of state assets to the private sector.

But providing more short-term support for Greece "is just kicking the can down the road," Piccoli said.

Officials in Europe are hoping to keep Greece solvent long enough to allow other troubled European nations to strengthen and put pressure on Greece to enact the painful reforms passed Wednesday.

At the same time, the European Union is working with Greece's main creditors -- French and German banks -- to roll over some of the nation's debt into longer-term bonds.

"It's unclear how that will be done, though there seems to be some willingness there," on the part of the banks, said Piccoli. "But that's just another measure to gain time, it doesn't diminish the amount of debt that Greece will be left with."

The bottom line is that Greece's ability to repay its debts remains in question.

"For all economic intents and purposes, Greece has already defaulted," said Sandeep Dahiya, professor of finance at Georgetown's McDonough School of Business. "There's no way Greece can repay all the money it owes."

The big worry is that other debt-laden nations in Europe -- particularly Ireland, Portugal, Italy and Spain -- would be dragged down if Greece were to default in a disorderly way.

But the threat to the U.S. economy, for now, remains remote.

That's mainly because U.S. banks have relatively little Greek debt on their books and the financial markets have largely priced in Greece's fiscal problems, which have been playing out for over a year.

Nevertheless, the situation remains highly uncertain.

Greece austerity: Cure or poison?

"We're still not sure how much exposure there is," said Gus Faucher, an economist at Moody's Analytics. "There is certainly the potential for a big problem in the U.S. if Greece were to default unilaterally."

While he believes that's unlikely, Faucher said an outright default by Greece could cause a financial shock similar to the one that occurred after Lehman Brothers collapsed in 2008.

The investment bank's implosion roiled global financial markets and caused a severe credit crisis.

Analysts say U.S. money market funds, which hold an estimated 40% of their assets in various forms of European debt, would be the most vulnerable in such a scenario.

The pain of Greece's crisis

Ben Bernanke, chairman of the U.S. Federal Reserve, said last week that the central bank is looking into how exposed U.S. money market funds are to Greece. He acknowledged that the indirect exposure could be "very substantial," but sounded hopeful that the worst won't come to pass.

In addition, some U.S. investment banks and insurance companies could be on the hook if they own credit default swaps linked to European debt.

These complex derivatives, which crippled US insurance giant AIG after Lehman fell, could also yield big profits for investors betting against Europe.

However, the market for credit default swaps is opaque and analysts say it's impossible to pinpoint how exposed U.S. institutions may be to them.

European stock markets extended strong gains on Thursday following Greece's approval of austerity measures needed to unlock critical bailout funding and stave off a debt default.

London's benchmark FTSE 100 index of top shares jumped 1.53 per cent to 5,945.71 points, while in Frankfurt the DAX gained 1.13 per cent to 7,376.24 points and in Paris the CAC 40 climbed 1.48 per cent to 3,982.21 points.

"The recent rise in European markets has continued today as markets end the month, quarter and first half of 2011 on a positive note, with oil and banking sectors leading the gainers as fears about an imminent Greek default get pushed out beyond the release of the next tranche of bailout funds," said CMC Markets analyst Michael Hewson .

The Greek parliament approved Thursday measures to implement 28.4 billion euros ($41 billion) in unpopular budget cuts and tax hikes despite street protests that turned violent this week.

The EU quickly said in response that Greece had now met conditions for the release of the next installment of 12 billion euros of bailout funds under under its 110-billion-euro EU-IMF bailout package agreed last year.

Athens faced the prospect of default in July if the bailout funds had been held back.

The Greek vote will also allow talks to proceed on a second bailout package expected to total a similar amount to ensure Athens has sufficient funding for the next three years.

News that German banks will take part in a second Greek debt rescue package also helped improve market sentiment, as did moves by Portugal and Italy to further tighten their budgetary belts.

Brussels ended the day up 0.97 per cent, Amsterdam rose 1.3 per cent, Milan climbed 1.62 per cent, Madrid jumped 2.13 per cent and Lisbon soared 3.03 per cent.

London was also supported by news that Lloyds bank will axe 15,000 more jobs and that the London Stock Exchange is once more a likely takeover target.

Lloyds, which is 41-per cent state-owned after a massive bailout, said it will axe 15,000 jobs in a drastic cost-cutting plan that will halve its international base and save £1.5 billion (1.66 billion euros, $2.4 billion) per year by 2014.

In response, LBG rocketed to the top of the FTSE 100 index, gaining 9.73 per cent to 49 pence as investors welcomed news of the measures.

Off the FTSE 100, the London Stock Exchange saw its share price jump 10.98 per cent to 1,061 pence, one day after The LSE and Toronto's bourse scrapped plans to merge after failing to win support from two-thirds of their shareholders.

"Shares in the London Stock Exchange rallied .. as investors speculated that the firm may become bid prey to Nasdaq OMX, having seen its multi-billion bid for Canada's TMX fall by the wayside," said analyst Giles Watts at City Index.

Nasdaq failed to take over LSE in in 2006 and 2007.

"Investors are now speculating that the firm's failure to secure a deal with the Canadian Exchange operator at a time of huge competition and subsequent consolidation within the sector makes it vulnerable," Watts added.

Wall Street also rallied on the Greek vote, with the Dow Jones Industrial average gaining 1.18 per cent to stand at 12,406.05 points at 1600 GMT.

The broader S&P 500 rose 0.94 per cent to 1,319.74 points, while the tech-heavy Nasdaq Composite climbed 1.19 per cent to 2,773.21 points.

Asian stock markets closed higher on Thursday after Greek lawmakers gave preliminary approval on Wednesday to the key package of spending cuts and tax hikes aimed at helping Athens avoid a catastrophic default.

Hong Kong gained 1.53 per cent, Tokyo added 0.19 per cent, Shanghai was up 1.23 per cent and Sydney rose 1.73 per cent.

Warnings from all three credit ratings agencies didn't do it. Seven weeks of talks among lawmakers didn't do it. Maybe President Obama's talks with Capitol Hill brass will do it.

But as of now, there's still no debt-reduction deal. And many lawmakers are still demanding one in exchange for their vote to increase the debt ceiling.

Here's an idea: Even if they can't come up with a deal by Aug. 2, lawmakers should raise the debt ceiling anyway. Then they should make a pot of coffee and go back to hammering out a debt-reduction plan.

Fiscal responsibility isn't a one-off proposition; it's an ongoing process.

If Congress fails to raise the debt ceiling by Aug. 2 -- the day when the Treasury Department estimates it will no longer be able to pay all the country's bills -- any number of damaging and utterly preventable scenarios could occur.

Deadbeat nation: For starters, the United States would look ridiculous. The debt ceiling needs to be raised because of obligations that Congresses past and present chose to incur.

Not raising the ceiling would signal to the world that Americans are willfully choosing not to pay their bills. The message won't be "We can't pay." It will be "We could pay, but we've decided not to. Sorry."

Market mayhem: To date, investors have been trading on the assumption -- the rock-solid belief, actually -- that there is just no way Congress would fail to raise the debt ceiling in time.

If Congress dashes those expectations, no one can know exactly how the markets will react. But most think markets will react, and not well.

Some bond experts expect that contrary to popular belief, Treasury rates won't rise but stocks may tank. In other words, there will be a move out of risk-based assets and a flight to safety in bonds.

Bond experts to Congress: Don't mess it up

So interest rates may stay low, but Americans' investments get whacked.

Or, Treasury yields could become volatile and start to climb as investors smell political instability in Washington. That would push the cost of U.S. debt higher.

Hopping mad republic: If Treasury is technically and legally able to prioritize the payment of interest to bond investors, the country may avoid the kind of default that would trigger rating downgrades.

A growing number of lawmakers say that it's OK not to raise the debt ceiling as long as Treasury continues to make payments to bondholders.

But that doesn't mean there wouldn't be seriously negative consequences.

"Someone -- perhaps millions of someones -- won't be paid on time. Contractors, federal workers, program beneficiaries, or state and local governments will suddenly find themselves short on their cash flow," former Congressional Budget Office Donald Marron wrote in a recent op-ed in the Christian Science Monitor.

That could hurt the economy, which is still trying to find its sea legs, and won't do much for the country's mood.

Damaged reputation: Even if bond investors continue to be paid, investors and credit rating agencies won't take it lightly when Treasury has to delay payments to others.

Such delayed payments -- and the public anger that would result -- could cause investors to worry that even if they're getting paid today, tomorrow may be another story. And they could trade on that concern, even if it's unfounded. That, in turn, could cause interest rates to rise.

Fitch Ratings Agency said it would put the country on "Ratings Watch Negative" in such a scenario.

"Extensive payment arrears to suppliers of goods and services to the government ... would damage perceptions of U.S. sovereign creditworthiness and signal growing financial distress," the agency said in a recent report.

The S&P already has already downgraded its credit outlook on the United States to "negative" from "stable." And Moody's is considering doing the same.

Downright default: This is the very worst and still least likely of outcomes, because most believe that there's no way the U.S. government would not pay its bondholders.

But if they don't raise the ceiling, lawmakers would raise the chance that those bondholders don't get paid over time.

Debt ceiling: What you need to know

That could theoretically happen if the Treasury a) is somehow not able to prioritize payments to bondholders; or b) has to pay out more to bondholders than it has coming in on any given day.

On some days Treasury brings in more money than it has to pay out. And on some days it doesn't. But on average, the United States comes up short by about $125 billion every month.

To cut that much spending or raise that much extra in tax revenue overnight would hobble the U.S. economy and very likely de-stabilize world markets.

A U.S. default would be catastrophic, influential bond investor Mohamed El-Erian said Sunday on CNN's "Fareed Zakaria GPS."

His advice to Congress? Raise the ceiling, even if you can't complete a debt-reduction deal in time.

"If ... you're going to kick the can down the road, kick the can rather than face something that could be catastrophic in terms of legal contracts being triggered," said El-Erian, CEO of PIMCO

The Federal Reserve is winding down its $600 billion bond buying stimulus that helped fuel an eight-month stock rally, and experts say stocks are ready to take back the reins.

They don't need or want any more stimulus, say strategists surveyed by CNNMoney.

Even though stocks have retreated about 7% since the start of May, most market strategists say the pullback is temporary, and are calling for the S&P 500 to rise more than 7% during the second half.

That means the S&P 500 would end 2011 with double-digit gains ... at a fresh 3-year high. All of that without any additional stimulus.

"The Fed should stop. They've done more than enough already," said Matt King, chief investment officer at Bell Investment Advisors. "Any further stimulus only increases the long-term risk of inflation, which we already view as high."

A stormy year for stocks

What's more, some went so far to say that the Fed's stimulus program, known as quantitative easing or QE2, was "a failure."

"It weakened the dollar and stuck the economy with higher food and energy prices," said Donald Selkin, chief market strategist at National Securities, adding that those factors are to blame for the recent pullback in consumer spending and slowdown in economic growth.

CNNMoney survey: Where the markets are headed

Rather than another round of monetary stimulus, experts say policymakers need to focus their goals on righting the nation's fiscal ship to keep the market and economy on track.

"The Fed should move to the sidelines until Congress acts to extend the debt ceiling and addresses a budget deficit package," said Marc Pado, chief investment strategist at Cantor Fitzgerald.

Without Fed intervention, Congress may also be more inclined to address tax policies that are keeping record amounts of corporate cash abroad, experts said.

If Congress were to enact some sort of repatriation tax holiday, it could bring some of that money back to the United States, which would spur business spending and lead to more job creation.

"The Fed needs to pass the baton to the next runner in this relay race and that is business spending," said Burt White, chief investment officer at LPL Financial. "It is time for businesses to spend and hire, which will move the baton later to the anchor runner, the consumer."

Share investors are likely to cheer the increase in fuel prices that is expected to improve India's deteriorating finances, partly weighed down by fuel subsidies and demonstrate the government's commitment towards reforms. But this optimism is unlikely to translate into gains for stocks as the much-awaited decision on diesel and cooking gas prices will add to inflationary pressures in the short-term and may prompt the central bank to increase rates further.

"It is a bold move by the government after a long time and investors will like it," said Motilal Oswal, chairman & managing director, Motilal Oswal Financial Services . "While the move is inflationary in short term, the market has more or less discounted it, but a lot will depend on the monetary policy reaction," he said.

On June 16, the Reserve Bank of India raised key rates for the tenth time since March 2010 and is widely expected to tighten the screws further in July.

Focus to be on Europe, Crude Oil

Investors fear more rate increases would be excessive and would delay the economy's ability to bounce back once inflation settles around the central bank's comfort level of 6%. India's wholesale price inflation jumped to 9.06% in May. Fund managers expect inflation to accelerate to over 10% over the next few weeks as higher fuel prices would increase transportation costs of food.

In the longer run, most economists say, the higher price of diesel will encourage more rational use of the fuel and benefit the wider economy. "The increase in diesel and LPG prices may have an effect on inflation in the short term and in turn worry the market, but the move is beneficial for the economy and long-term investors will be happy," said Aneesh Srivastava, chief investment officer, IDBI Federal Life Insurance.

Brokers said the focus this week will continue to remain on the debt situation in Europe and the direction of crude oil prices. Benchmark Indian share indices - Sensex and Nifty - rose almost 3% on Friday, as foreign investors bought shares worth Rs 890 crore after global crude oil slid, Europe pledged to rescue Greece, and China hinted that it may be nearing the end of monetary tightening.

In the past few months, the perception of a government in disarray has gained ground as it has increasingly given the impression of being unable to deal with a blizzard of scams and agitations by groups claiming to represent civil society.

A widely-followed CEO poll carried out by industry body Ficci and published by ET in its edition dated June 13 reported that a majority of respondents expected little of the Congress-led UPA government. The price hikes may help reshape the impression of haplessness. Late on Friday, the government raised diesel rates by Rs 3, LPG by Rs 50 per cylinder and kerosene by Rs 2 per litre.

In May, the government had increased petrol prices by Rs 5 per litre. The government last increased prices of diesel and cooking gas on June 26 last year, despite global crude strengthening since then. "If all petro product prices are passed on properly, markets will bottom in the next three months and recover significantly thereafter because growth is still there," said Sankaran Naren, chief investment officer, ICICI Prudential Asset Management.

OMCS TO BENEFIT

Shares of oil marketing companies may surge on Monday as the government's decision to increase petroleum product prices will help trim losses that they incur from subsidised sale of oil and cooking gas. Brokers said the step has brought cheer to investors in these companies as they expected a lesser increase in diesel prices and none in kerosene and cooking gas.

Though the three oil marketing companies - Indian Oil Corp (IOC), Bharat Petroleum Corp (BPCL) and Hindustan Petroleum Corp (HPCL) - together will still incur revenue losses from fuel subsidies of Rs 121,000 crore this year, the increase in product prices will reduce their monthly borrowings and improve cash flows.

"Shares of oil marketing companies will rise this week not because the petro price increases will bring these companies back into profits, but that there were very little expectations from the government," said the investment head of a mutual fund owned by a public sector bank. "Also, their valuations are almost at rock bottom because these stocks have hardly seen any movement," he said.

Shares of BPCL and IOC have fallen about 4% so far in 2011 against the 10% fall in the Sensex during the period. HPCL shares, which surged 6% on Friday, have been unchanged since January. BPCL and IOC gained almost 3% each on Friday ahead of the meeting of the government representatives to decide on the prices. Oil marketing companies buy crude at international prices, but sell diesel, kerosene and LPG at subsidised prices fixed by the government.

The government compensates them through a mix of cash subsidies and discounts from oil exploration and production companies, including Oil & Natural Gas Corporation (ONGC) and Oil India. Shares of ONGC and Oil India could also rise on Monday as their share of the overall subsidies will drop after the price increases. "Outlook of upstream companies have been clouded by the ad hoc nature of the subsidy-sharing formula. Lack of concrete subsidy-sharing mechanism has resulted in earnings/valuations of upstream companies being contingent upon government directives," said Enam Securities, in a note prior to the rise in prices.