Sean O'Grady: Another mythological Greek rescue

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The Independent Online

Is it enough? For now? Yes. For long? No. Fundamentals keep poking through, which is why every previous "rescue" has foundered. After all, it is barely a fortnight since the crisis was last declared over. The problem is that the deal just won't work, whatever happens. Only if the Germans were prepared to fully underwrite Greece for ever would it truly succeed, and that appears to be unacceptable in Berlin.

Even though the interest rate on the loans is below market rates it is still high – higher than any realistic assessment of Greek economic growth over the next few years. That means the cost of servicing Greek debt will rise in real terms and represent an ever more onerous burden on the budget. The Greeks may soon descend into a cycle where the only way it can meet its interest obligations is to tax and slash its economy into ever greater weakness, leaving an even bigger deficit and interest burden. That's what could go wrong if the Greek government makes its austerity programme stick – a debt deflation spiral.

The second possibility is that the cuts required will quite quickly prove politically impossible to deliver, and that default – or debt restructuring to give it its more euphemistic name – becomes inevitable sooner rather than later.

It is all too plausible: let us recall that, for most of her history as a modern independent state, Greece has been in default. This crisis is not yet over.