Europe's deal gives RBA good reason to sit tight

Weak governments will have to agree to impose such conditions, putting their own tenures at risk, with dangers of growing economic and social unrest and possibly provoking the rise of darker nationalistic forces.

Although austerity and economic reform come straight from the economist's playbook, there are two ingredients missing.

The first is currency devaluation.

Australia's substantial currency depreciation in the early 1930s is judged by historians to have helped produce its relatively fast recovery from depression. And the 10 per cent wage cut contributed to boosting national competitiveness.

A second ingredient for recovery is hope for the future.

Unrelieved austerity, especially when a country's unemployment rate is high (24 per cent in Spain, 50 per cent among the youth) and rising, gives no hope.

Being told to work harder and smarter, when there is no work, makes a mockery of leadership.

Australia in the Great Depression had plenty of austerity, but also a coherent recovery plan (including some new public works) devised by our economists and imposed by our government.

When the man from the Bank of England attempted to impose unrelieved austerity, he was widely condemned, and lampooned in popular verse and radical songs: Otto, the rotter, Neimeyer.

The agreement reached on Friday finally made some concessions to the case put by the Club Med members of the eurozone, and saw Germany finally stop saying "nein" to every such suggestion.

Psychologically, the compromises finally deliver hope to those people from warmer nations.

They include several contributions to hope for the unemployed.