As expected, Germany blinked and Homer nodded. The Germans had to agree to more money being lent to Greece whilst they have the proper argument about what the future should hold. The European Central Bank continues to bail out Greece via emergency assistance to its banking system. There is a delay in implementing all the requirements of the last loan package, whilst Greece tables new proposals. Germany’s promise to enforce all the old loan agreements and to offer no new money has been broken. The message to other countries strapped for cash and disliking the conditions of loans is to cause trouble.

Greece had to swallow much of their bold rhetoric. Greece has had to apply to extend the old loan agreement which it said it intended to tear up. Greece does have to deal with the troika, though perhaps under a different name, when she said she would not do so. Greece will have to table austerity proposals next week to substitute for any of the current austerity requirements in the loan agreement which she does not like.

Meanwhile, in the real world, Greece will spend and borrow more, with likely overruns on the permitted deficit (called a primary surplus by being struck before interest charges). The European institutions will continue to finance Greece. It is more extend and pretend. The Euro has decided to be a bit more flexible to avoid a Greek exit, despite their fine strong words that a Greek exit would now be a minor matter for all but Greece.

Is this just kicking the can down the road for a couple of days? Or for a few weeks? Or will it result in a longer term fix? Time will tell. It appears that Germany is allowed to make the weather with the words, trying to spin the outcome as a tough settlement, a victory for austerity. Meanwhile the officials and the institutions which increasingly drive Euro policy are working behind the scenes on flexible language to cloak the truth, which is the zone so far has decided to extend more credit and pretend Greece can meet her obligations.

It’s no way to run a serious major world currency. If they carry on like this their economies will continue to malfunction, unemployment in parts of the zone will stay far too high, political protest will grow, and from time to time there will be alarms in the markets and in the weaker national banking systems. Cyprus shows us one way out of a financial mess for a state in the Euro – capital controls. Another way is for the rest of the zone to write off more of the offending state debts. They still have to arm wrestle electorates and some political parties as they seek to impose stricter controls on future spending and borrowing by states that cannot pay their way. Greece does not today suddenly become a paradigm of German virtues meeting all her loan conditions as some German comment would have you believe.