So Sarkozy and Merkel have reached into the magical top hat and produced a bailout deal for Greece that involves haircuts of no more than 20% for bondholders. No need for further spending cuts for Greece beyond what's been agreed, everything's rosy. Yes, Greece will technically default but there won't be much significant chance in the credit ratings anyway. So everyone's more or less happy, Greece won't drop out of the Euro and no banks will take dangerous hits on their capital. Sorted!
So Greek bondholders get rolled over to 15 or 30 year terms. That means that for the next 15 years the amount of debt that Greece holds (and pays coupons on) will not drop at all even if they don't issue a Euro more of debt. Will Greece spend no more than it receives for the next 15 years? I think not. They're going to run into the same brick wall of spending-vs-unaffordable-debt. I give it two years at the outside. What do they do then, roll over terms to 50 years? Who the hell are they kidding?
Incidentally, it'll be interesting to see if any French or German banks take significant write-downs as a result of the haircuts. If so, they were marking their Greek debt at over 80% of nominal value, and you can bet your bottom dollar that a lot of other things on their balance sheets are similarly 'optimistically' marked.
It'll be interesting to see how Angela sells this to her fellow Germans.