On June 22, at three o’clock in the morning, officials in Brussels declared a victory for the Eurozone’s last intensive care patient after eight years of public spending cuts, and cleared Greece to borrow from markets after August 20.
Austerity has brought some important results. Greece balanced its budget, so it is living within its means. Its exports are rising, so it is bringing in much-needed foreign revenue. The assurance of creditworthiness from the International Monetary Fund and the European Stability Mechanism – the sovereign distress fund that now owns most of Greece’s debt - is an important signal to markets. It should mean that Greece can start to rebuild its credit history and refinance its debt.
Other aspects of the deal are less reassuring. Supervision of public spending will persist for the next 40 years, so Greece hasn’t really graduated - it’s on probation. During those two generations, Greece must set aside an average of 2.2 percent of its economy to repay its creditors. This means that it will remain belaboured by austerity policies that presently include uncompetitively high taxes.