A deal!

Well, there's a deal, and the markets have rejoiced. I confess I didn't think they'd do it in time. Some time ago I wrote 'the only people who can't see that Greece will default are the people who matter' and now they have seen it. The 'haircut' is 50% which may not be quite as much as it should be, and may be less when the technical calculations come out, but they have recognised that there should be a haircut.

The leveraging of the EFSF, again, is not as much as people wanted, at around $1 trillion. The markets wanted a 'big bazooka' but it is at least a small one. The increase will not be underwritten by the European Central Bank, which many wanted.

Lastly, the recapitalisation of the banks is simply a recognition that Greece isn't going to pay and in the future some others might not, either. Of course banks have to write down their investments to their market value.

So where are we now? Although the Italian set of promises included a provision to make it cheaper to lay workers off, there is little or no addressing of the fundamental issue here: that Southern European economies are less efficient than northern ones. The Germans simply seem to be saying that they should live within their means. But this will not work: if we are not to have a similar crisis in a year or two they must change even their labour laws.

Again the fundamental problem is simple and well known. Many of us said when the euro was formed that a currency union would not work without a political union. Britain could never join a political union and was wise to stay out but the others have implicitly agreed to it. What will happen when, say, the Italians get a letter from a financial President (for, yes, one is envisaged) that they have to adjust their trade union legislation, we can only surmise.

But they have done fairly well. The dogs are at least staved off. For a bit.