The deal means prime minister Alexis Tsipras gets the cash he needs to avoid Greece defaulting on loans

The cameras lovingly tracking the street riots have long moved on, as largely have the rioters themselves, but the Greek economy remains in the sick bay.

The early hours of the morning saw Greece reach an agreement with creditors over its latest bailout and, crucially, pave the way towards a possible rescheduling of its crippling debts.

The immediate priority was to enable Athens to be able to come up with the €7.5bn that it is due to repay creditors in July.

In time, though, the hope will be that the country can reschedule its €330bn debt mountain. This is equal to some 180% of Greek GDP - getting on for twice the debt-to-GDP ratios in the likes of Britain and France.

The deal, which has been greeted positively by stock and bond market investors, means further cuts in living standards for some Greeks.


It means, for example, that state pensions, which have already been cut by 40% since 2011, will be reduced by a further amount, averaging 9% but by up to 18% in some cases, by 2019.

At the same time, the threshold at which income tax becomes payable will fall from the current €9,000 to €6,000 by 2020, dragging more low-paid Greeks into the tax net.

Other elements of the agreement are aimed at making the Greek economy more competitive and include labour market reforms, making it easier for businesses to fire or lay off employees.

Greece has also agreed to partially privatise coal mines and coal-fired power plants owned by state-run electricity provider Public Power Corp, which is itself contending with a €2.2bn backlog of unpaid bills. This is on top of some €3.6bn worth of spending cuts to which Athens agreed earlier this month.

Needless to say, this has not gone down well with the Greek public, with opposition politicians calling for an early election. Alexis Tsipras, the prime minister, is currently due to go to the polls in 2019.

The latest agreement unlocks payments from the €86bn bailout from the International Monetary Fund, the European Central Bank and the European Commission - the third since 2010 - which is due to expire next year.

The bigger prize for Greece, though, will be reaching a longer term deal to reschedule existing debts. Mr Tsipras hopes, if this can be achieved, it would allow Greek government bonds to be included in future asset purchases by the ECB - potentially cutting Greece's borrowing costs in future.

But it is equally vital because the IMF is reluctant to lend more money to Greece until a rescheduling of existing debt.

It argues that, although Greece's public finances are recovering - the country actually achieved a 4.2% budget surplus last year, beating the target set in its bailout - such an improvement is not sustainable.

Christine Lagarde, the IMF managing director, is pushing for such a deal and the Eurogroup - the grouping of eurozone finance ministers - has also stressed the need to make Greece's debts more sustainable.

Jeroen Dijsselbloem, the Dutch finance minister and chairman of the Eurogroup, said last week that a deal over Greece's long-term debt was desirable in May. This was a big change of tack because, previously, the Eurogroup has said such a deal could only be struck after the current bailout ends.

Yet such a deal will prove difficult because Germany, the biggest European contributor to the three bailouts Greece has received, insists there can be no write-offs of debt resulting in creditors suffering a 'haircut', in the jargon, particularly with Angela Merkel facing a general election this September.

It wants further interest payments to be deferred rather than dropped altogether. An agreement is essential as Berlin also insists that, without the IMF, there can be no future bailouts.

It points to a continuation of the cycle in which Greece and its creditors have operated since the start of the decade.

Tough negotiations, a compromise by the Greek government, followed by more austerity.

However, if a deal can be reached over Greece's long term debt, that cycle might - just - be broken.