The outline agreement reached between Greece and its creditors on its third bailout deal represents a surprisingly calm end to an extraordinary saga. The proposals still require political approval, both in Greece and the creditor countries, but the change in tone on both sides in recent days has been noticeable. It does now appear likely that the third bailout will be agreed – getting it implemented and achieving its goals will be another matter entirely.
The delay and uncertainty of recent months has taken a heavy toll on the Greek economy, where the banking system has not been operating properly for a prolonged period. This reflects poorly on the initial tactics adopted by the Tsipras government, which for far too long favoured rhetoric over real negotiations. The creditor countries and the institutions are culpable too, particularly in the length of time it has taken them to accept the obvious fact that Greece needs a restructuring of its national debt.
In the short term, the focus must be on getting the necessary approval for what has been agreed. However no one should doubt the scale of the challenges ahead. The Greek government faces enormous difficulties in implementing the deal. The economy is shrinking and the citizens, who voted for change, are being asked to accept more of the same in terms of tax increases and spending cuts. Stabilising the financial system, meanwhile, will be an enormous task in itself.
The indications are that the Greek government has a list of actions to implement before significant cash will be released. Whatever the formula , some realism is now needed from the creditors. Greece, and its banking system, require cash quickly. Better to start advancing a realistic sum soon, to give some chance of stability being restored, than to wait for some box-ticking exercise to be completed over a few months, during which conditions will only deteriorate further.
Debt relief is also required, if the programme is to have any chance of reaching its goal of bringing Greece back to financial solvency. Over the next few months the goal has to be to send a clear message that things have changed, that reform is being implemented, enough cash is available and Greece’s debt outlook is improving. Otherwise the risk is that the plan will simply run out of steam . Achieving this will require political courage both in Greece and its creditors.
The Greek crisis has been a sobering episode, bringing great hardship and uncertainty to the Greek people and carrying with it the real threat of a country leaving the euro zone. There are wider lessons for the euro zone and its future development, which must now be seriously examined. The first job now, however, is to restore some stability in Greece and then to take a realistic view on how to build on it.