The agreement

Last night Europe replaced the sticking plaster with a surgical bandage.  The agreement reached should stop the rot for awhile but only if the fine words on economic integration become a reality.

So what was agreed? Like the sermons of old, there are three parts to the agreement.

Firstly, the banks that Greece is in hock to, will only get half their cash back. The other half is to be written off. This should make the country’s debt more manageable.

Secondly, the cash to throw at these problems, is going to be raised considerably. The bailout fund, called the European Financial Stability Facility (EFSF), is to be boosted to 1 trillion euros from the 440 billion euros set up earlier this year. There is only 250bn euros left  not enough to convince the markets. Now there much greater leverage.

There is a slight problem, however, getting the cash together.

The cunning little plan is to offer insurance to purchasers of eurozone members' debt. This will make these bonds more attractive to investors and in turn lower governments' borrowing costs.

In parallel, they’re going to set up a up a special investment vehicle and they’re hoping to persuade both big private and public investors to contribute. So shortly expect European leaders not on the slow boat, but on the jet plane, to China. Why? to get them to invest their big cash surplus.

The hope is to have things up and running by the end of next month.

The final part, is to insist that the banks raise new capital. 106bn euros by next June is the target the banks they’ve to meet. The hope is that this amount will shield the banks from losses should governments default.

Good though the deal is, and the markets have given it cautious welcome, it will only work if governments get to grip with their respective country’s economy. Left to their own devices there is no certainty that this will happen. So what’s to be done?

Well, the most significant part of the eurozone leaders' announcement earlier this morning, is the determination that there will be tougher controls in future on the budgets of member countries. There will be an integration of taxation, and a whole new framework for running the eurozone, including a new leadership structure.

If this happens the whole seventeen countries would have one economic policy and in effect would have become one big super state.

And where would that leave the UK, well outside and without influence.

Unable to influence an economic policy that will without a shadow of doubt have a real impact on the UK ‘s economy. The British would have the pretence of economic independence but this would be a pretence, the European super state would always be in the driving seat. It would be them in reality that would determine the economic health of most of Europe.