A STRANGE euphoria sets in when people have been up all night.

Their minds become fuzzy, their language extravagant. The delusion takes hold that simply to overcome sleeplessness and exhaustion is an achievement. This is not, you might think, ideal. But it is how Europe attempts to do business.

One result is that intelligent people say things they are liable to regret. Yesterday morning, for example, Christine Lagarde, managing director of the International Monetary Fund, decided to tell the world that a deal to grant 130 billion euros in loans "should give enough space for Greece to restore its competitiveness". She might as well have offered a vote of thanks to the money pixies.

Greece is enduring its fifth kill-or-cure "austerity package" in the space of four years. In each of those years the country has been in the pits of a deepening recession. The latest purgative dose prescribed by Lagarde's organisation, the European Central Bank, and the European Commission will bleed an economy shrinking by 7% annually. Soon there will be little left to "restore".

Ms Lagarde, on a good day, knows all this. Like her colleagues she also knows that more austerity for Greece is assisted suicide. She further knows – there is no end to expert knowledge – that the latest rescue attempt has next to no chance of succeeding. Yet she, the politicians and the central bankers persist. Then they declare a triumph.

These gloomy prognostications are not guesswork. Prior to the announcement of the loan deal a report into "debt sustainability", prepared for Eurozone ministers, was leaked. Broadly, it examined two possible endgames in the Greek crisis. You might call those the bad news and the really bad news.

In the first, based on a gloriously-optimistic belief that the Greek economy will stabilise and achieve 2.3% growth in 2014, the country will still need another bundle of loans – its third "bailout" – before the end of the decade. The figure mentioned is 50 billion euros.

If the news is really bad, meanwhile, the Greeks will fail to get their debt down to 120.5% of GDP, as the latest agreement requires. This doesn't seem unlikely. The austerity that is supposed to reduce the debt is instead eradicating the ability of the Greek economy to grow and – did no-one spot this coming? – reduce the debt. In this case, says the report, 245 billion euros will be needed.

Consider: it took months of haggling, riots, inter-governmental insults and wholesale misery for the people of Greece just to achieve yesterday's deal. Does anyone seriously believe the process can be repeated? Greek democracy, such as remains, would not survive. The euro would not survive, at least in its present form.

Which problems were solved, then, by the latest cliff-hanger in Brussels? Greece's private creditors took a 53.5% hit on their bonds: 46.5% is, by their calculations, better than nothing. Europe's central banks agreed, meanwhile, to defer interest charges on their Greek holdings until 2020. In exchange, Greece's government agreed to the creation of a so-called escrow account where debt repayment funds will be held. "Aid" will not go to the Greek people.

Greece borrowed more than it could afford. Its politicians, specifically its conservative politicians, simply lied about the state of public finances. In essence, Greece is bankrupt. Not only has austerity failed for four long years it has, demonstrably, made matters worse. So the best minds in Europe insist – and this passes for logic – on more austerity.

The cries are loudest from the north Europeans, led by the Germans. They, the Dutch, the Finns and the Austrians have even been demanding that Greece should surrender control of its economy in exchange for aid. This is defined as prudence. It may turn out to have been stupid in the extreme.

How did the Eurozone's peripheral nations get into this mess? Are they truly as feckless as the German tabloid press would like to believe? They have certainly been the victims of political incompetence. But they have also been the victims of an interest rate policy designed to suit German exporters.

That country makes a fetish of low inflation. It therefore thrives on low interest rates and tends to find, what with Germany's clout, that the European Central Bank is happy to oblige. But countries with higher rates of inflation then find themselves, in the good times, with effective interest rates hovering at zero. Borrowing – often to purchase those fine German exports – becomes inevitable.

That's not the whole story, but it underscores the absurdity of the rhetoric heard from Lagarde and her ilk. They seem to suggest that everyone must be like Germany, that salvation lies in exports and that "competitiveness" – cuts in real wages, as often as not – is a precondition. They overlook a detail: if everyone becomes a net exporter, who imports? The glib answer – China – does not solve the problems of a European single market.

Despite the brave, dizzy-headed talk, nothing of importance was achieved in Brussels. Greece will meet a 14.5 billion euro bond deadline on March 20 and stumble on for a few months or years, until the next crisis. If its economy and social fabric can survive, that is. If its people, with half of their sons and daughters out of work, will stomach more sacrifices.

All of this has less to do with inherent flaws in the Eurozone and its interest rate policy than with German attitudes towards an economic crisis. That attitude is shared by Ms Lagarde's IMF. It has imposed austerity on country after country down the years and has seen the policy fail time after time.

It sounds like irrational behaviour, and it is, but it springs from the belief that common people must always pay the price for a system of economic organisation built on instability.

Watch what happens, nevertheless, if Greece is forced out of the euro. The banks never lost their taste for credit default swaps, those infamous debt insurance instruments. The swaps have "derivatives". Where Greece is concerned, the derivatives have derivatives. No one knows their total value.

They know who will pick up the tab, though, if Greece defaults. It won't be the Greeks alone.