Prime Minister Alexis Tsipras is checking his list.

Photographer: Angelos Tzortzinis/AFP/Getty Images

Now Comes the Hard Part for Greece

Mohamed A. El-Erian is a Bloomberg View columnist. He is the chief economic adviser at Allianz SE and chairman of the President’s Global Development Council, and he was chief executive and co-chief investment officer of Pimco. His books include “The Only Game in Town: Central Banks, Instability and Avoiding the Next Collapse.”
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Greece and the euro zone dodged another bullet Friday. After tense negotiations, they stumbled into an 11th-hour agreement -- at least in principle -- on a four-month extension of the external funding program supporting the country’s reform and recovery. 

​Financial markets celebrated; and it didn’t take long for some of the negotiators to publicly declare victory, though the two sides presented competing (if not mutually exclusive) narratives.

Greece's Fiscal Odyssey

Rather than a decisive breakthrough, Friday’s agreement was a small step in a drawn-out and complicated process. Its robustness will be tested as early as today when Greece is required to present a list of policy intentions for the approval of euro-area finance ministers.

But that endorsement is just one of the challenges facing Greece before it can sustainably reset its working relationship with its European partners and consolidate its membership in the currency union.

Once Greece gets past today's hurdle, the agreement will be subject to approval by the parliaments of several euro-area members. These political discussions will be lively, and will expose two conflicting views of the road ahead.

In some parliaments -- particularly those of Germany and Finland, but also some debtor countries -- the major concern will be whether, yet again, the euro zone has succumbed to pressure from Greece. This discussion will be based on a narrative that still characterizes Greece as profligate and unwilling to live within its means. 

In other countries, and particularly Greece, the worry is that any agreement will be little more than a repackaging of the crushing austerity conditions that are seen to have spread poverty and hindered economic recovery, jobs and prosperity.

There is much at stake because a rejection by just one national parliament could derail the deal at the European level.

The difficult prospects for the parliamentary discussions reflect a broader trust deficit, which has been accentuated by recent personality clashes, especially between German and Greek officials, and a public blame game. 

​This erosion of trust impedes the convergence of views on the past and present that is an important foundation for a common vision for the future. And it is particularly harmful when it comes to finding an operational approach that, by necessity, relies on small confidence-building steps.

​Friday’s accord was necessary but far from sufficient. Its emphasis -- on maintaining the flow of official European funds to Greece pending comprehensive agreement on the complicated and controversial remix of austerity, structural reforms and debt relief -- is important but narrow.

The larger challenges ahead to resolve the Greek crisis will be more difficult to overcome, by many orders of magnitude.

This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.

To contact the author on this story:
Mohamed A. El-Erian at melerian@bloomberg.net

To contact the editor on this story:
Max Berley at mberley@bloomberg.net