Covenantal Nomism, or Are We Really Christians?

This is partly trying to get things clear in my own mind. I think an awful lot of people I respect greatly and often trust to get things right are very wrong on this, so I need to treat very carefully...

Here's the theory of covenantal nomism, as taught by theologian Gabriel Biel:

• God made a covenant - a deal - with his people in Jesus
• The deal was that he would save them, and that they had to obey him as well as they could.
• God then graciously agrees to count people who have done as well as they could, even though they aren't perfect, as if they had done enough.

It's worth adding that Gabriel Biel was a German theologian who died in 1495, and his view of covenantal nomism would probably have been one of the main bits of theology taught to a young Martin Luther, which Luther then rejected.

It's also been argued that covenantal nomism (apart from the covenant being made through Jesus bit) was the belief of many Jews at the time of Jesus, which Jesus and Paul rejected. Actually, that's what the phrase usually means - I've just nicked it for Biel because it fits his views so well.

So far, so good, I guess. But the point is that I can't tell the difference between covenantal nomism and this:

• God has made a covenant with his people in Jesus
• The deal was that if people will obey Jesus and submit to him as their Saviour and Lord, he will forgive them.

Or even this...

• We have made a covenant with God, where he saves us, and we agree to follow him.
• Sometimes we break that covenant, and we then need to renew it. Confession and covenant renewal services are a good way of doing this.

That last one in particular sounds like a lot of things I've heard and come across as a Christian. My view, which I think Luther shared, and I'm fairly sure is what Galatians (for example) teaches is this:

• God chooses to reveal himself to some people and to save them.
• God gives them his Holy Spirit, which leads them increasingly to obey him
• We cannot keep our side of whatever bargain, deal, or covenant there is, so it's just as well there is no side we have to keep. God's new covenant in Jesus' blood is completely one-sided.
• Having been completely set free from any requirement to do anything, we should use our freedom to live in the way of God's Spirit.

Now, to my mind, that looks completely different to all the covenant renewal stuff and conditional covenants and requirements for church membership other than faith in Jesus stuff.

One thing that really worries me about this, is that if I'm right, the "fault line" goes right down the middle of evangelicalism, and most people seem completely unaware of it. I've been to covenant renewal services at both my sending church and my theological college where what was being said and taught was effectively covenantal nomism rather than free grace.

It is for freedom that Christ has set us free. Stand firm, then, and do not let yourselves be burdened again by a yoke of slavery.
Galatians 5:1, NIV

You, my brothers, were called to be free. But do not use your freedom to indulge the sinful nature; rather, serve one another in love.
Galatians 5:13, NIV