Some today will heave a sigh of relief . They will say that Greece is saved. Now she has agreement to write off one quarter of her debt she can go off and borrow some more from the IMF and EU. Her debt burden is temporarily cut.
They will say the EU banks can now pay for their share of the Euro 100 billion of losses they are losing on Greek debt because they are to raise Euro 100 billion of new capital.
They will point to the Euro 1 trillion fund available to underpin the markets in Italian, Spanish and any other Euro area debt where markets might lose confidence. This money, they say, is available to prop up those debt markets and keep interest rates down.
They will say that in future there will be more budget discipline enforced on all Euro members through stronger and better EU arrangements.
Markets may believe this for a bit. The first reactions have been to rally on the news.
Underneath the press statements we are told work needs to be done on the details. We need to know
Where does the Euro 1 trillion come from? Who has to pay it back in due course?
How much difference does cancelling Euro 100 billion Greek debt make to their budget? How will they control other spending? How does Greece now start to compete within the Euro area? Have all the banks agreed to write off some of their Greek debt? When does it happen?
What is the intervention policy to keep Italian, Spanish and other interest rates down to an affordable level? Is the ECB going to buy any more bonds? Is it going to print any more Euros?
Where does the Euro 100 billion for banks come from? Could it be that banks required to improve their position do so by lending less rather than by raising new money? How many investors want to put new investment money into a bank in order to pay for past losses on Euro sovereign lending?
When will the new political arrangements stop large deficits and the build up of debt occurring in the future? How will it work? What happens if a country still ignores the requirement to cut its debt and deficit?
We now have confirmed more of the characteristics of the Euro area. We know that it thinks the private sector should take a big hit when a country borrows too much. We need to see if the ECB and other public holders are also going to agree to losing half their(and our) money. Greek taxpayers will still have to pay interest and repay capital to the various public sector lenders.
We know that Euro area leaders think it’s fine to say to private sector pension funds and savers that they should not expect a Euro area government necessarily to honour its debts and repay money owed.They own a lot of the banks that take the hit. Some will say if one Euro country can get away with this, why not another?
We know that decision making in the Euro zone remains slow and chaotic. Having to get 17 governments around a table and then broker a deal in the full glare of the media is not an ideal way of making decisions that are dissected and assessed by fast moving markets.
This looks like another attempt to tackle the synptoms. The underlying problems remain. Many Euroland countries are not competitive at the current exchange rate. Several Euroland countries have too much debt and are borrowing too much. How much more of the bill will Germany pay? How can they earn their livings and grow their economies?
Meanwhile the two tier EU is taking shape. Euroland is becoming a club within the club. The UK needs to get on with negotiating a new relationship with it. The Uk has to accept that as Euroland presses on to fuller political and economic union, more and more will be decided by the 17. In return for this, the UK needs to make more of her own decisions about things that matter most to us, whilst keeping single market matters as the decisions of the 27 EU members, not just the 17 Euro members.