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Well, that is that, or at least sort of that. What's next? All experience should teach us to be very wary of first reactions to any new chunk of financial information and we should see the outline European deal in that light.
In the short-term there is no doubt that a deal, however flawed, is better than no deal. What has been agreed is pretty much what was foreshadowed in these columns and elsewhere - the way European politics work is that something is cobbled together in the end.
As the facts become clearer, we will be able to work out how the burden of the Greek default will really be shared, how the beefed-up European Financial Stability Facility (EFSF) will work, the form that economic surveillance of the weaker eurozone nations will take and so on. But the way bank shares shot up on Thursday showed the markets had feared an even worse outcome. You can agree with Sir Mervyn King, who ahead of the deal reckoned it would only buy 18 months or so - with which I agree. Still, it's a breathing space and attention will switch to the real economy, in Europe and elsewhere.
The first question is if the eurozone will move back into recession. The general view now seems to be that this is more or less inevitable. The most recent surveys of business opinion for Germany, France and Italy have been pretty negative. That does not mean there will be a recession but it suggests that in Italy and perhaps France, that would be the most likely outcome. This would be consistent with the lacklustre European share markets of recent weeks, insofar as the markets have any consistency at all. That leads to a second question: is this agreement likely to depress activity in Europe by forcing the weaker countries, in particular Italy and Spain, to correct budget deficits more quickly? The conventional view is that it will to some extent but we cannot know for sure.
There will be some mechanical reduction in demand if governments cut back their spending or increase taxes but there should also be some boost from increased confidence, as was evident in European shares. My instinct is that the fiscal consolidation is more or less neutral in its effects, while the real problem is lack of structural reform. In other words, you do more to boost growth by cutting bureaucracy than by cutting taxes. We must wait and see.
As far as the UK is concerned any deal in Europe is better than no deal, and so the Prime Minister and Chancellor were right to welcome it. But opinion is divided as to whether the UK is nevertheless likely to experience another recession. The Bank of England evidently thinks it is on the cards but this is not the mainstream prediction of economists, leading to the question of whether the Bank is simply being alarmist or whether it knows something the rest of us don't.
The G20 economic summit in Cannes this month will give some sort of endorsement to this deal and that's good. In the short-term order is better than chaos. But in the long-term Europe needs catharsis and this deal by no means brings that.
