THE GREEK STOCK MARKET, THE BIGGEST RISE IN JANUARY "Shopping" for banks on the Athens stock exchange

• The optimism is caused by the hope that the foreign aid agreement will be signed

• The negotiations, postponed until Wednesday

Europe's ugly duckling, Greece, was last month's surprise, as its stock market posted the biggest gain on the continent (+17%), according to the report of the Federation of European Securities Exchanges (FESE).

Even more surprising, banks were the stars of the month, with the index which tracks the sector gaining 83%.

It needs to be said however, that the gains come after the market fell over 50% in 2011.

It seems that investors, in particular the Greeks, who were net buyers in January, had high hopes for a positive outcome of the negotiations between the authorities in Athens and the international institutions on the conclusion of a new agreement of foreign financing.

Foreign investors were net sellers in January, with net capital outflows of 34.99 million Euros.

Some analysts are saying that even if Greece succeeded in avoiding a disorderly default, the recent rise of its stock market is somewhat exaggerated. Others consider that the gains of the bank stocks which was sparked by the agreement on the terms for the recapitalization of the (ed. note: following the losses incurred in after the haircut of the Greek sovereign debt they held - with the measure being part of the financing agreement), which seems to favor a solution which would not involve their nationalization.

Nicolae Gherguş, the president of "Confident Invest", explained: "In the context of the sovereign debt crisis, the bank stocks had fallen last year.

In January we saw a correction, amid the optimism concerning the resolution of the Greek problem and the European support for the Greek government", Gherguş says, and went on to say:

"Greece had the biggest rise in January, because it had also had the biggest drop.

Banks in particular had fallen dramatically, because they had borrowed money to the Greek state. A Greek default would have led to certain losses to many of the banks, as some of them would have lost on the bonds, and others were counterparties for the CDSs (ed. note: credit default swap - insurance instruments against sovereign defaults). But an agreement of the majority of investors on the < haircut > (ed. note: the wiping) of the debt is not considered a < default >, which means that the CDSs are not activated".

"Thus, the losses are capped and their extent is known, but I think that this is only for the moment".

• Movie-like rescue or unhappy ending?

For now, the euphoria in the stock market doesn't seem too justified.

Suspense reached a climax and everyone is waiting to see whether Greece would get the dose of oxygen at the last minute to avoid default.

Greece runs the risk of defaulting in mid-March, if it does not receive the financial aid package of 130 million Euros.

But the ministers in the Eurozone have extended the agony, as they were unhappy with the behavior of the Greek authorities.

On Thursday night in Brussels, they have decided to postpone until Wednesday the authorization of a new financial aid plan for Greece, by imposing several demands, including the making of new budget cuts (325 million Euros).

• The plan was scheduled to go through the Parliament on Sunday

Another condition was for the Greek parliament to have approved, by Sunday (ed. note: the vote was scheduled to take place at midnight), the austerity plan which the government in Athens had agreed upon with the troika EU, ECB and IMF troika, with the backing of the political parties in Greece.

On the night of Friday to Saturday, the Greek coalition government approved the austerity plan demanded by the IMF and the European Union, as PM Lucas Papademos warned against the risk of "uncontrolled chaos" in Greece, if the parties did not back the plan. Analysts were betting on a favorable vote in the Parliament, because the parties in the coalition include over 230 MPs, out of a total of 300. Still, some of the MPs of the governing parties were expected to vote against the austerity plan.

• Efforts to avoid activating the CDSs

Last week, Greek Finance Minister Evangelos Venizelos announced that he has reached an agreement with the private creditors to wipe some of the country's debt.

The agreement negotiated for several weeks between Greece and the private sector concerns the wiping of 100 billion Euros off its debt towards banks and other investment funds. The objective set by the leaders of the Eurozone is to lower the level of Greece's public debt to a level considered bearable, more specifically to 120% of the GDP in 2020.

This threshold is a condition for the IMF to continue lending to Athens.

Some foreign analysts were expecting hedge funds with exposure to Greek bonds to refuse the debt reduction, since the default and namely the activation of the CDSs would have been favorable.

European officials, including former ECB head Jean Claude Trichet, have tried to avoid the default, precisely to avoid the activation of the CDSs, which would have encouraged the "bets" against other countries in debt, such as Italy, Portugal or Spain, and would have worsened the debt crisis.

As the European Central Bank showed no signs that it wanted to participate in the efforts to reduce Greece's debt, some hedge funds bought Greek bonds precisely in the hope that an agreement would not be reached until March, when payments worth 14.4 billion Euros were coming due.

• The intervention of gray eminence Jean-Claude Juncker

On Friday however, the president of the Eurogroup, Jean-Claude Juncker, said that the ECB needs to review, in the context of its independence, how it can contribute to lower the Greek debt. "I hope something can be found", Juncker said.

Analysts estimate that the portfolio of Greek bonds owned by the ECB amounts to approximately 50 billion Euros.

The president of the ECB, Mario Draghi, said: "Concerning Greece, I am sorry that I cannot say anything on how we are going to deal with the Greek bonds that we own".

Anonymous sources have said that the representatives of the ECB do not have a common position on the contribution of the ECB to the restructuring of Greece's sovereign debt, whereas Greek private lenders are being forced to wipe 50% off the worth of their Greek bonds holdings. Frank Vogl, spokesperson to co-president of the Steering Committee of the Private Creditor-Investor Committee for Greece, made the following statement after the meeting of the Eurogroup which took place last week: "We appreciate the progress which was achieved in the Greek program. We are anxiously waiting for Wednesday, at the new meeting, for the whole package to be completed, including the PSI (ed. note: the involvement of the private sector - agreement with the private creditors), based on the agreement of the Eurogroup summit, of October 27th, 2011".