There was a certain inevitability about the Greek bail-out deal struck in the early hours of Tuesday morning in Brussels. The negotiators clearly decided to stick to coffee for themselves, and bread and water for the Greeks, rather than reaching for bottles of Mort Subite [Sudden Death], a Belgian beer worthy of its name. When the brinkmen get so close to the edge, as they did last week, they rarely jump.
There were some surprises, though. The unfortunate banks were asked to undergo yet another short back and sides. The central banks have agreed to disgorge some profits, to support lower rates for Greece. And some other creative accounting measures have brought the projected level of debt to GDP down to within a whisker of the magic 120 per cent number.
On Tuesday morning the markets opened as usual and begun to trade. But the notion that the day’s trading will be a meaningful verdict on the deal is fanciful, because we are now in territory where the markets have no particular wisdom. They cannot begin to answer the three outstanding questions, which will determine whether this latest deal is a turning point, or yet another false dawn on the slippery slope to default and “Grexit”, an ugly but vivid term coined by Willem Buiter of Citigroup.
The first question is – can the Greek government retain control of the streets? So far they have done so, but the mood in Athens and elsewhere is volatile.
The second is – what kind of government will be elected in March? Wolfgang Schäuble, the the German finance minister, betrayed his anxiety about the election outcome when he suggested an Italian-style technocratic administration. That was always unlikely, but Mr Schäuble has made it impossible. So next month’s elections will be crucial, and there are signs that the parties that have distanced themselves from the negotiations will do well. But a fragile coalition may not be able to deliver the dramatic spending cuts the deal implies.
Only the third and final question is economic in nature. Will the Greek economy pull out of its free fall and begin to stabilise this year? Even the strongest advocates of the terms of the Greek rescue recognise that austerity will only take us so far. Unless there is a return to growth before too long, the debt mountain will continue to grow more rapidly than the Troika can shovel it away.
Here the signs in Greece itself are not optimistic. If anything, the contraction has gathered pace in recent months. But some of that may be confidence-related. The optimists may also look to some tentative signs that the US is recovering more rapidly than foreseen, and the eurozone is not slowing as sharply as feared, to suggest that the global climate may be warming a little.
The odds on a happy end to this story? One would have to say that they remain quite long. The scale of internal devaluation required will impose severe strains on the social capital of a country whose stock is already low. But they are perhaps a little shorter than they were last weekend.
The writer is a professor at the Institute of Political Studies (Sciences Po) in Paris.