Why the Greek bail-out has worked

Everyone says that heightened talk of a Greek default is proof that last year's bail-out has "failed". But you could make a strong case for the opposite.

In reality, all that the Greek support programme last year was ever going to do was buy time. And that is exactly what it has done. It just hasn't bought quite as much as governments hoped.

As I said in my last post, officials are agreed that Greece needs more support. The only issue is what form this takes - and how many hoops the government has to jump through to get it. Germany is also looking for voluntary re-profiling of privately held debt along the lines that I described yesterday as part of the deal. (Though it's far from clear that can happen on the timetable available).

Even the non-eurozone officials who have been most exasperated by Europe's management of the crisis would accept that governments were right a year ago to kick the Greek problem down the road and buy the system some time.

One year on, they are roughly back where they were, facing the same choice.

What's changed, from a Greek standpoint, is that its government is now much less popular than it was, and it now has even more debt to repay.

For the rest of the eurozone, the key differences between now and then are that a much larger share of Greek debt is now owed to official institutions (notably the European Central Bank), and that outside the periphery, Europe is enjoying a decent recovery.

Put it another way: Greece looks less able to repay than it did a year ago - while the system as a whole looks in better shape to withstand a default.

For some, these new dynamics shift the balance in favour of facing up to the reality of an involuntary restructuring or Greek default. Officials should stop fighting it, on this view, and instead focus on limiting the collateral damage, by recapitalising the banks that will be hardest hit (notably the Greek, French and German). They also need to have a credible line on what will happen to the sovereign debts of Portugal and the Irish Republic.

That is the voice you hear in the markets these days. I am in Athens today, and so far that is also what I am hearing from people here.

But most of the eurozone officials who would actually have to deal with the fallout from a Greek default - and the blame, potentially, for another Lehmans - see things differently.

From their perspective, buying time has worked for the eurozone. It just hasn't been working out so well for Greece.