The new Greek bailout agreement is both a significant economic event and a German foreign policy success. The two are interlinked.

Economically, the agreement moves towards European integration. A partial debt default, effectively a 21 percent bond write down, together with reducing interest on bailout loans from 5.5 percent to 3.5 percent, extending repayment periods, and a $157 billion bailout package, should allow Greece's short term financial stabilization.

Nevertheless, key economic issues remain unresolved. Greece's debt still stands at 150 percent of GDP. The bond writedown is less than their 40 percent market discount. The EU has not increased its European Financial Stability Facility.

Most fundamentally, the euro contains a central contradiction as long as a united European state does not accompany European monetary union. A currency union, such as the Eurozone, means the effects of inevitable changes in relative regional productivity, and therefore costs of production, which take place in a continental scale economy, can no longer be dealt with by exchange rate changes. Eurozone economies with lower productivity growth, such as Greece, will become increasingly uncompetitive compared to economies with higher rates of productivity growth such as Germany.

In a united state covering a continental scale economy, such as in the US or China, such problems can be dealt with by budget transfers from richer regions to poorer ones - the largest part of taxation goes to the central government which can regionally redistribute it. But the EU’s central budget is insufficient to achieve this.

Nevertheless this contradiction need not become acute in the short term. If significant European economic growth occurs then the resources will be generated to make adequate transfers to countries such as Greece or major economies such as Italy if required. The difficulty is that at present vigorous European growth appears unlikely.

The core issue which determined the Greek bailout agreement, and also coming events, is the substantial benefits Germany derives from the euro. Eurozone countries cannot competitively devalue against Germany. Germany also gains from currency association with weaker economies as these lower the Euro's exchange rate, aiding German exports.

The euro's costs to Germany - transfers to Greece to pay interest on the latter's debts, and higher German bond yields because of links to weaker currencies - are smaller than Germany’s gains. In turn, the international political dimensions of the Greek bailout are linked to the steps taken to maintain the euro.

The euro is currently the main alternative reserve currency to the dollar - the dollar's share of the world's foreign exchange reserves has fallen from 71.2 percent in 1999 to 60.7 percent in 2011, while the euro's rose from 18.1 percent to 26.6 percent. As the dollar's role as world reserve currency is a foundation of current US economic policy, this slow but clear decline in the dollar’s position is a key issue for US economic policy.

To the economic question of the euro was added in 2003 a political issue between the US and major European states. France and Germany, supported by Russia, opposed any UN resolution authorising a US invasion of Iraq. Subsequent events showed that this stance that the invasion was correct -the new US president Obama himself opposed the war. But 'neo-con' circles in the US were determined to secure renewed European support for US foreign policy.