by Calculated Risk on 2/20/2015 05:11:00 PM

There was an agreement today (pending some proposals on Monday) to extend the Greek bailout for four months.

My first reaction is that there seem to be two possible outcomes in four months:

1) The technocrats at the ECB / EU / IMF agree to change the target for the primary budget surplus. The current plan is for Greece to run a primary surplus of 3.0% in 2015 and 4.5% in 2016, however that assumed that the unemployment rate would peak at 14.8% (instead the unemployment rate increased to close to 28%), and that GDP would start increasing in 2012 - instead GDP kept falling - and Greece is now in a Great Depression size contraction.

Contractionary policy has been very contractionary!

It is amazing that Greece is even running a primary budget surplus with a collapsing economy. If the primary target isn't change, the depression will continue.  A little growth would help everyone, so easing the primary budget target is critical.

2) The Greeks will take the four months and ready the drachma printing presses.

Point 1 is possible, but the technocrats are the only hope for Greece, not the politicians.  See the following quote from German Finance minister Wolfgang Schauble in 2013:

"Nobody in Europe sees this contradiction between fiscal policy consolidation and growth,” Schauble said. “We have a growth-friendly process of consolidation, and we have sustainable growth, however you want to word it.”

Not everyone is blind to the obvious - some people in Europe see the obvious contradiction (just look at the data for Europe as a whole and Greece in particular).  Too many politicians can't (or won't) look at the data and change their minds.