'Recent domestic data generally had not suggested a significant weakening in conditions compared with the forecasts a month earlier.' Inflation was low and expected to remain near the bottom of the target zone.

And, in any case, there had not been time to assess the effects of the earlier reductions in the cash rate.

The big worry was 'clear evidence suggesting a softening in global conditions', and increased uncertainty about the future in Europe, with the possibility of increased 'precautionary behaviour' here.

Now Europe has reached some sensible compromises, providing hope there will be more in due course. The domestic situation has not weakened, employment has been strong and indeed increased export volumes have offset weaker commodity prices.

If ever there is an iron-clad case for the Reserve to sit tight, with monetary policy on the easy side of neutral, today presents such a case.

Events in the Eurozone have been dramatic, with plenty of good judges suggesting disaster was a real possibility.

Germany and a few other Northern nations are growing and seem on top of their economic challenges.

The Club Med nations are in deep recession with unsustainable national debt mountains, in most cases piled on top of equally damaging Everests of private debt.

Five such nations have asked for help to rescue their banks, and others may join that mendicent queue before long.

Germany, the nation that will eventually be forced to lead the rescue of the weak nations, or abandon them, faces great dilemmas.

The instinct of Germans is not to bail out the weak nations and the weak banks, including weak banks of their own, without imposing strict conditions that will include budgetary austerity and microeconomic reform.

Weak nation governments will have to agree to impose such conditions, putting their own tenures at risk, with dangers of growing ecoconomic and social unrest and possibly provoking the rise of darker nationalistic forces.

While austerity and economic reform come straight from the economist's playbook, there are two ingredients missing.

The first is currency devaluation.  Australia's substantial currency depreciation in the early 1930s is judged by historians to have helped produce its relatively fast recovery from depression. Also the 10% wage cut, another contribution to boosting national competitiveness.

A second ingredient for economic recovery is hope for the future.  Unrelieved austerity, especially when a country's rate of unemployment is high (24 % in Spain, 50 % among the youth) and rising, provides no hope. Being told to work harder and smarter, when there is no work to be had, makes a mockery of leadership.

Australia in the Great Depression had plenty of austerity, but also a coherent recovery plan (including some new public works) devised by our own economists and imposed by our own government.

When the man from the Bank of England attempted to impose unrelieved austerity, he was widely condemned, and lampooned in popular verse and radical songs. 'Otto, the rotter, Neimeyer'.

The agreement reached last Friday finally made some concessions to the case put by the Club Med members of the Eurozone, and saw Germany finally stop saying 'Nein' to every such suggestion.

Psychologically, finally the compromises deliver hope to those people from warmer nations (very warm just at present, incidentally).

They include several contributions to hope for the unemployed:
-A 10bn-euro boost of capital for the European Investment Bank, expected to raise overall lending capacity by 60bn euros
-Targeting 60bn euros of unused structural funds to help small enterprises and create youth employment
-A pilot launch of EU project bonds worth 4.5bn euros for infrastructure improvements, focusing on energy, transport and broadband.

Crucially, the Eurozone leaders have agreed to use the Eurozone's planned bailout fund to directly support struggling banks, without adding to government debt.

After many hours of talks, they also agreed to set up a joint banking supervisory body for the Eurozone.

There is now the prospect that in the longer term there may be a Eurozone-wide fiscal authority with teeth and Eurobonds, relegating national bonds to the status of state bonds in thoroughly federated nations.

I remain doubtful that cultural differences will ever allow a fully functioning Eurozone Federation, or indeed that such a solution is desirable even on narrowly economic terms.

But I am relieved that the Eurozone leaders have finally shown the ability to reach the sort of sensible compromises required in any democratic nation, as this removes the possibility of deadlock leading to unpredictable economic meltdown.

Time has been brought, and the Reserve Bank is entitled to sit and watch how the current, more hopeful, situation plays out.  The general point is that the Eurozone crisis has a long way to go yet, and China and America are growing more slowly than we are used to seeing.

Perhaps this is the new condition for us all, and it would not be all bad if it was.

Published today in The Australian.