The agreement refers to a “European Marshall Plan” to restore competitiveness to Greece. This doesn’t appear to mean money. Instead it seems to refer to the provision of “exceptional technical assistance to help Greece implement its reforms”. In other words, someone else will be running Greece’s affairs. That might be regarded as a positive development. Greece has, after all, proved quite incapable of running them for itself. Democracy has nevertheless been suspended.
The package proposed on Thursday was essentially the same as that put forward by the European Commission as far back as last February, but which up until now has been consistently blocked by Germany. Ms Merkel had dug her heels in and said that never would Germans agree to the collectivisation of Europe’s debts.
She’s not the only one being forced to perform a giant U-turn. The European Central Bank must also drop its opposition to any kind of default. Jean-Claude Trichet must eat his words. The lines European policymakers drew in the sand have proved to be no more than posturing.
The dam has been breached, and the European Financial Stability Facility (EFSF) is to be given wide-ranging powers to intervene across eurozone bond markets, including those of Italy and Spain, where spreads have widened precipitously in recent weeks.
Greeks have rioted against their own government for threatening to make the cuts necessary to right their national ship. How will they react when austerity is imposed on them, without their input, from Berlin?
Not well, I’d expect. Not well at all.
And then there is the potential impact on international finance.
Yet because outright default is apparently unacceptable within the eurozone – for the central bank to accept defaulted bonds as collateral is to besmirch the currency – the distressed nations are instead to be offered a subsidised interest rate not much higher than that paid by Britain, the US, France and Germany.
Far from being punished for its profligacy, Greece is to be rewarded. It makes no sense, and locks Germany into indefinite subsidy of the eurozone fringe.
The Merkel government has fought this proposal, but in agreeing to it, has saddled Germans with responsibility they don’t want or need. And what happens when the Merkel government goes down because of this deal and is replaced by one that seeks to repeal it?
As I say, this looks bad for everyone.