Andrew Webb: Markets get off to a confident start

Italy’s Prime Minister did not lash-out at S&P for downgrading the country’s debt to BBB+, he welcomed the accompanying report and pointed out the positive comments it made about the progress the country had made since he took office. Investors recognise this and are giving Mr Monti time to see if his plans work before expressing their judgement through the market.

That luxury may not be afforded the Greek Prime Minister, Lucas Papademos. If Greece is unable to reach agreement with its bondholders on how its debt can be restructured, it will not be able to afford to pay back €14bn of maturing bonds on 20 March.

The worry for investors is the string of unanswered questions that surround this event. Will agreement be reached? If so, how painful will it be for current bond holders? If not, will it mean Greece is forced to leave the euro? How will that happen? On what conditions would it stay in?

Some people expect Greece to default and claim therefore that this is priced into the market. But the market can only price what it knows and with so many outstanding questions, there remain known and unknown unknowns in the valuation assets. Mark 20 March in your diary, it might turn out to be a decisive turning point in the eurozone crisis.