Europe's discordant leaders snatched a deal on Monday that might just avert Greece's euro exit, but global investors' faith in the durability of the single currency has been tested yet again.
Even assuming parliamentary approval for the pact is navigated successfully, investment firms are having to examine what six months of squabbling mean for the soundness of the euro and regional assets.
To be sure, many funds stuck doggedly to the assumption that Greece's leftist government and its increasingly exasperated creditors would find a last-minute resolution -- an approach vindicated on Monday, even if nerves were jangling.
Many now hope the issue can be put to rest for a while, allowing markets to focus on the euro zone's recovery and other pressing global events from Shanghai to Washington.
Yet the spectacle on Saturday of Europe's largest economy Germany arguing for the 'temporary exit' of a member state crystallised what many investors have suspected over five crisis-filled years: that membership of the euro is not as irreversible as its founders insisted.
How euro securities price that new reality is critical and will depend largely on how much of it is already accounted for.
"Europe is clearly weaker than it was, more vulnerable than it was," said Paul Lambert, fund manager and head of currency at Insight Investment. "The step back is that it's now clear to everybody that it's possible for a country to leave the euro."
If that is the case, long-term borrowing costs for the most indebted governments, still 3-4 times higher than before the credit crisis, may never compress fully again, with some currency redenomination risk embedded even at the margins.
They may also become more volatile once the European Central Bank ends its bond-buying programme next year. That could exact an economic cost for a region that can ill-afford lost growth.
Christophe Donay, strategist at Switzerland's Pictet Wealth Management, said the balance of the euro's political engines still felt wrong and the divide between 'rigorists' led by Germany and 'solidarists' led by France looked wider than ever.
"This schizophrenia in the euro zone will continue to create tensions over fiscal and crisis management," said Donay, assigning a 45 percent chance of an eventual euro zone break up.
Others fear a persistent credibility deficit in the eyes of non-euro investors.
"From the outside the whole process looks chaotic. Every American must doubt the sanity of the European decision-making processes," said Hendrik Leber, managing partner of Frankfurt-based ACATIS Investment. "Strict rules are broken. The biggest sinner gets the biggest attention. A multitude of voices."
"European government bonds will be watched more carefully than ever before, which results in a much stronger market-driven discipline on debtor nations," Leber added.
NERVE HELD
For many fund managers, bond markets' relative calm during this latest episode does at least show the institutional buffers and anti-contagion backstops put in place since 2012 are robust.
But even they bemoan the extent to which political brinkmanship, with the attendant risk of a policy accident, is still required to make serious inroads on reform.
"This highlights what we have learned already ... that the euro project is incomplete and needs to be at some stage completed seriously," said Geraud Charpin, portfolio manager at BlueBay Asset Management. "Today, there is a bigger risk that the euro project will crumble."
Markets rallied briskly on Monday as news emerged that an agreement to keep Greece in the bloc had been struck, with euro zone stocks up about 1.8 percent from Friday and about 9 percent higher than their lows of last week.
That brought them back to levels of June 26, just before Greek prime minister Alexis Tsipras called a referendum on bailout terms.
Yield premiums paid by southern European governments over Germany fell to some of their lowest levels in two months, while the euro traipsed around recent price ranges just above $1.10.
"The new news is that for the time being the Greek situation is manageable and markets are re-rating equities modestly higher," said Andrew Milligan, head of strategy at Standard Life Investments, adding "the euro zone is still vulnerable".
Some feel blue chip stocks should be relatively immune to even the long-term euro rethink. "The future of Siemens and BASF are hardly influenced by the Greek drama," said Leber at ACATIS.
There was also caution about reading too much into the political theatre.
"We should not over emphasise the headlines and under emphasise the substance," said Joe Di Censo, Managing Director, Fundamental Fixed Income at Blackrock.
Other investment firms preferred to look at the positives from this weekend's fractious summit.
"The euro area will come out stronger than before because it has remained true to its reform beliefs. Greece had to back down," Generali Investments' head of tactical asset allocation Klaus Wiener said.
"This should make clear to opposition movements in other countries that there is no escape from the structural reform necessities a common currency area brings about."
Iain Stealey, portfolio manager at JPMorgan Asset Management, said the deal proved there is a strong commitment to keep Europe together and did not alter his fund's position.
"We're very impressed with how Europe is recovering. We've been even more impressed with how it's reacted to Greece," Stealey said.
"The ECB have done a very good job of ring-fencing Greece. We're pretty happy with those assets and it feels a bit better this morning."
