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 100 billion euros of losses they are losing on Greek debt because they are to raise 100 billion euros of new capital.
They will point to the one trillion euro 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 one trillion come from?
Who has to pay it back in due course?
How much difference does cancelling 100 billion euros of 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 European Central Bank going to buy any more bonds?
Is it going to print any more euros?
Where does the 100 billion euros 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 fails to cut its debt and deficit?
We now have confirmed more of the characteristics of the euro area. We know that it thinks only the private sector should take a hit when a country borrows too much. Public sector holders of Greek debt apparently do not face a write-off of some of their holdings. Greek taxpayers will still have to pay interest and repay capital to various public sector holders.
We know that euro area leaders think it is 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 Eurozone 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. This looks like another attempt to tackle the symptoms. The underlying problems remain.
Many Euroland countries are not competitive at the current exchange rate. Several have too much debt and are borrowing too much. How much more of the bill will Germany pay? How can they earn their livings?
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, while keeping single market decisions for all 27 EU members, not just the 17 Euro members.
What they said...
I think they have made very good progress on the key issues they need to make progress on. I think they got a good agreement last night. Of course, we have now got to get the detail. There is still quite a lot of detail to fill in. – George Osborne, Chancellor of the Exchequer.
These are exceptional measures for exceptional times. Europe must never again find itself in this situation. That is why we must further improve our economic governance, namely in the euro area. – European Commission president Jose Manuel Barroso.
It’s a clever piece of financial engineering in which everyone promises to pay everyone else and the whole thing exists on a Rubik’s cube of arithmetical calculations – but that does not necessarily mean it’s a bad thing. – A summit negotiator.
Nobody should take for granted another 50 years of peace and prosperity in Europe... that’s why I say: If the euro fails, Europe fails. – Angela Merkel, the German Chancellor.
We have been negotiating for long hours, but I believe the result will relieve the whole world. We have a credible and ambitious and overall response to the Greek crisis. – French President Nicolas Sarkozy.
We can claim that a new day has come for Greece, and not only for Greece but also for Europe. – Greek Prime Minister George Papandreou.
The implication is unmissable – that the eurozone will more closely resemble a superstate, with countries on the outside such as the UK unable to influence much of Europe’s economic policymaking. – Robert Peston, the BBC’s business editor.
John Redwood is a Conservative MP and was a Cabinet minister in John Major’s government.