After 17 hours of negotiation, Greece has finally agreed a deal which will keep it in the eurozone (for now). Matthew Partridge looks at the key points of the Greek deal.
What's going on?
Despite repeated pledges that the hard deadline for any agreement was Sunday, negotiations between the eurozone and Greece continued into this morning, with a deal agreed a few hours ago.
Essentially, the deal forces Greece to accept continued austerity, including most of the tax increases and spending cuts required in the deal it initially rejected. In return, it will get a three-year bailout, and a promise that its debts will be "restructured" (ie partially written off).
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
The big twist is that it will be required to sell €50bn of state assets. The money will be put into a fund that will be used to recapitalise the banks, pay off debts and stimulate the economy.
Why are so many people angry?
Commentators are arguing that forcing the Greek government to sell important state assets and put the revenue into a fund over which it has limited control amounts to a "coup". This represents "the immolation of Greek democracy," argued Boris Johnson in The Daily Telegraph Europe is a "cruel monetary version of the Ottoman empire".
However, it could have been worse. Germany originally wanted to have the fund located in Luxembourg, and run by a German development agency, in order to make sure that Greece wouldn't renege on the deal.
So, will the deal go through?
The deal only requires that a super-majority' of nations support it (in other words, a small country like Finland can't veto the deal). However, all the attention will be on Greece and Germany, who both have effective veto power.
In Germany, several of Angela Merkel's party have pledged to oppose any further bailout. However, Merkel is likely to win the vote with the support of the SPD and far-left parties (some of whom think the deal is too harsh).
Similarly, the near-unanimous support of the Greek opposition is likely to help the deal get ratified on the Greek end. However, there is a strong chance that the ruling party might split. The Greek labour minister thinks there will have to be fresh elections.
Will capital controls be lifted?
The European Central Bank meets later today to decide whether to provide more emergency funding to Greek banks. This could help them reopen, reducing the damage to the Greek economy that has resulted from the breakdown of the payments system. But it may decide to maintain restrictions until a deal is formally ratified.
In any case, confidence in the banking system is so low that some sort of capital controls are likely to stay in place, to prevent large amounts of money being withdrawn.
What about the long term?
Most commentators are sceptical about whether this will work in the long run. "It is impossible to imagine that conditions will now return to anything like normal", said Jonathan Loynes of Capital Economics. Indeed, "the additional austerity needed to build up the primary surpluses will weaken the economy further". This deal "will merely delay the inevitable, and perhaps for not very long".
At least it could help "the current crisis come to an end, especially if politicians continue to emphasise the growth friendly element of the deal," noted Jim Leaviss of M&G Investments. But without large-scale debt relief, "we will inevitably be back in this same position again within the next few years".
