This is going to be the most important week in the 11-year history of Europe's monetary union. By the end of it we will know whether the Greek fiscal crisis can be contained or whether it will metastasise to other parts of the eurozone.
By then, the International Monetary Fund and the Greek government should have reached a deal. There are three things to watch out for. First, and most important, Greece will need to present a transition programme that explains how a large primary deficit can be turned into an equally large primary surplus without causing a slump in economic growth. What I have heard so far from Greek economists is deeply discouraging. Most of the suggestions are old-fashioned accounting tricks, such as trying to add estimates of the black economy into the official number for gross domestic product. What we should be looking for is a three-year programme that lays out detailed expenditure cuts and structural reforms.
Second, the total loan package has to be substantially higher than the €45bn pledged so far (of which €30bn is from the European Union, and the remainder from the IMF). The EU's contribution is for one year only, and I see little chance that the EU will be able to increase it either now or next year. Axel Weber, president of the Bundesbank, has estimated that Greece will need about €80bn for the entire period of adjustment. That is about right. What we need to hear is a credible and watertight commitment that extends beyond €45bn. Greece will need cover for at least two years – during which all of the policy adjustment has to be decided, and most has to be implemented.