I’m with Liam Halligan all the way on his response to the European bailout deal. It isn’t enough and it won’t work. They are trying for political reasons to escape what economic necessity dictates. They will not admit they made a mistake in admitting Greece into the Euro (although President Sarkozy has called that an error perpetrated by his predecessors). They do not want to undertake any step that might retreat from ‘ever closer union’.

The austerity measures (‘fiscal responsibility’) are hard for electorates to accept, much harder than the automatic effects of devaluation. Frankly, I don’t see how the governments concerned can deliver. Greece should exit the euro, followed by Portugal. Faster than anyone supposes, markets would adjust to the new facts and stability would emerge.

Halligan is skeptical about the ‘relief rally; staged by equity markets in response to the deal.

"By late Thursday, though, and certainly on Friday, the warning signs were there. Global bond markets, by character more sober and smarter than the excitable equity guys, were voting against the deal. This is alarming. For it is only by selling more bonds that the eurozone’s deeply indebted governments can roll-over their enormous liabilities and keep the show on the road…"

"Let’s be clear – if global bond markets stop lending to a number of large Western economies, we are in the realms of unpaid state wages and pensions, transport chaos and closures of schools and hospitals – sparking the prospect of serious civil unrest."

He describes the deal as another of the "extend and pretend" non-solutions, and gives the deal two weeks before it begins to unravel. I’m not sure about the timing, but given the lack of information about how the EFSF’s €440bn is to be leveraged, and from where the funds will come and why, I think pessimism has it by a length. This is not over and it’s going to get worse.

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blog/international/no-big-deal