Euro-area/Greece deal will not avert Grexit risk

Significance

The agreement testifies to the wish of all parties to avoid a euro-area breakup. It averts the risk of Greece's immediate exit from the single currency. However, the risk of Grexit remains. The deal involves Greece accepting restrictions on its economic sovereignty, and the euro-area aligning with the tough conditionality demanded by Germany and other 'hawks'. Parliamentary rejection in Greece and/or by prospective creditors might yet upend negotiations on a new bailout.

Impacts

• The crisis has damaged Germany internationally, because of the tough line it has taken, and strained Franco-German relations.
• The ECB's status as a politically independent institution is likely to be damaged however Greece-creditor relations develop.
• Eurosceptics are likely to gain from the demonstration of the extent of economic policy sovereignty loss required by euro-area membership.