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A Lego shark chomps down on the Greek flag as other figures holding an Italian (L), Portuguese (C) and Spanish flag look on over a sea of Euro coins - Source: Getty Images -
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Stock markets around the world are reacting positively to the Greek parliament passing an austerity bill but an economist is warning that the saga is far from over.
The bill included drastic cuts to the civil service, the minimum wage and welfare spending and provoked riots on the streets of Athens.
Locals have been angered by the cuts, which are needed to secure bailout funds to meet a debt deadline next month. But global markets opened higher in their first sessions since the deal with Wall Street's main indexes up around half a percent and Tokyo's Nikkei up 0.8%.
James Shugg, a senior economist at Westpac in London, there are still fears of contagion.
"There's still a lot of uncertainty and it's not absolutely clear cut yet that Greece can still avoid default...even if they avoid it in March," Shugg told TVNZ's Breakfast.
He said the reaction in stock markets were "modest".
"There's been a bit of a buy attitude towards risk today but (it's) only very moderate," he told Breakfast.
Shugg said the mood is cautious as the so-called troika of the European Union, European Central Bank and the International Monetary Fund still needs to decide if the cuts are enough. They will vote on accepting the Greek austerity plan at a meeting this Thursday (NZT).
"The Greeks themselves have to come up with another 300-odd million euros worth of cuts by the meeting because the Germans pointed out that the plan - as they assessed it - would fall short by 2020 and their debt levels would still be too high," he said.
Shugg said the bank is predicting contraction for the whole euro zone in 2012 and he thinks attention will soon turn to other indebted countries like Italy and Spain which are also administering aggressive budget cuts that will slow down tax revenue.
"This is not just about Greece, it's about the broader European picture but Greece is like an early example of what could happen in other parts of Europe later this year," he warned.
