Europe's ailing currency union approved its second bailout for Greece in less than two years, signing off on a $170-billion rescue package early Tuesday after weeks of bickering and rising ill feeling between Athens and other regional capitals.
The deal should help ward off the specter of an imminent Greek default, which threatened to occur as early as next month and to throw global markets into turmoil.
But the price for Greece is a fresh round of punishing austerity cuts that its parliament approved last week, despite an economy already gutted by previous belt-tightening measures. The new bailout also comes amid stark warnings that it still may not do much to lighten the burden of debt that Athens is staggering under.
Finance ministers from the 17 countries that share the euro currency sealed the agreement in Brussels after 13 hours of negotiations. In a sign of the mutual mistrust that has deepened of late, the ministers demanded that Greece set up a special escrow account for money to be spent on servicing its debt and not on other public expenditures such as teacher salaries.
Despite the heavy demands being made of it, including the relinquishment of some fiscal and economic sovereignty, Greece welcomed the bailout package, which it needs most urgently to make a bond repayment that comes due next month. Without the rescue funds, Athens would be forced to declare bankruptcy.
"The Greek people [are] sending Europe the message that they have, and they will, make the necessary sacrifices in order for our country to regain its place within the European family," Evangelos Venizelos, Greece's finance minister, said in a statement before the marathon negotiating session. "For Greeks, this is a matter of national dignity and a national strategic choice."
The agreement envisages a larger-than-anticipated contribution by private creditors to debt relief for Greece, to bring the country's overall debt level down to 120.5% of gross domestic product by 2020. Creditors are expected to take a 53.5% write-down on their holdings of Greek bonds, up from the 50% being negotiated just a few days ago.
Talks with bondholders have dragged on for months, but officials are hopeful they can be concluded within the coming days.
Also, interest rates on the emergency loans from Greece's first bailout are being lowered.
None of the bailout's elements, however, directly address the increasingly desperate need for a return to economic growth, without which Athens will find it impossible to pay off its debts. Greece is already into its fifth year of severe recession; last year, its economy shrank by nearly 7%.
Many analysts say that the German-led insistence on even more austerity for Greece — about $4 billion worth of cuts in the latest round, including steep wage reductions and thousands of public-sector layoffs — merely threatens to bury the country in an even deeper hole.
"What the Greek economy is going through basically is a massive demand shock," said Simon Tilford, chief economist at the Center for European Reform in London. "Unless they help the Greek economy back to growth, then I don't think there's any chance of the Greeks being able to abide by the terms of this bailout."