BRUSSELS — The bailout has saved Europe, for now, but it's unlikely to save Greece.
The $172 billion rescue, agreed to Tuesday after an all-night summit of European ministers, prevented an uncontrolled bankrupcty and calmed investors worried that a Greek default would have started a chain reaction across Europe. But it left key problems unresolved.
Draconian budget cuts could keep Greece mired in recession after five straight years. The deal doesn't directly address the debt problems in other struggling countries in the 17-country zone that uses the euro. Spending cuts could reduce tax revenue and possibly worsen the government's finances.
From almost unprecedented infringements on national sovereignty to a radical overhaul of the economy, the bailout — the second in less than two years — will leave little of Greek life untouched.
In exchange for the billions of dollars in emergency loans, plus the forgiveness of more than $100 billion in debt owed to private bondholders, Greece has committed itself to years of brutal public spending cuts that will slash wages and pensions and push tens of thousands of people out of work.
"You can't shrink your way out of a recession," said Mark Weisbrot, co-director of the liberal Center for Economic and Policy Research in Washington. "What they are doing to Greece really makes no economic sense."
Some Greeks reacted to the news with a sense of unease.
"I don't see (the agreement) with any joy because again we're being burdened with loans, loans, loans, with no end in sight," Athens architect Valia Rokou said.
Greece's Finance Minister Evangelos Venizelos said the agreement managed to prevent a potential catastrophe.
Greece has been surviving since May 2010 on a first $146 billion batch of loans from the eurozone and the International Monetary Fund. That was not enough for the country to pay off its debts, however, and without more help the country faced defaulting on a bond repayment it could not afford next month.
"We avoided the nightmare scenario," Venizelos said after 15 hours of negotiations in Brussels.
Venizelos insisted that the way forward now involved "work, work, work, systematic effort, collectivity, unity, consensus, responsibility" so that Greeks can pull their country out of the crisis that has threatened to pull down the euro.
"There are downside risks — this is clear. It's not an easy program," said Christine Lagarde, the head of the IMF, one of the negotiators in Brussels.
But the package put together by Greece's Eurozone partners, led by fiscal disciplinarian Germany, remains focused on ever-greater austerity as a means of reducing government debt and deficit, with virtually nothing to encourage economic growth in the near term.
Protests in Greece are now commonplace, and sometimes dissolve into violent riots and choking clouds of tear gas. Homelessness, hunger and suicide rates have all climbed.
"I am profoundly aware of the heavy burden that Greek people are having to bear," said Jose Manuel Barroso, the head of the European Commission. But "there is no alternative to fiscal consolidation and to structural reform in Greece if Greece wants to regain competitiveness so that it can generate again growth and jobs."
The heads of Greece's main political parties were forced by fellow Eurozone leaders to guarantee, in writing, that they would abide by the bailout package's terms no matter the outcome of a general election expected in April. Even more extraordinary, the German finance minister suggested that Greece postpone the election.
Simon Tilford, chief economist at the Center for European Reform in London, warned that the disdain some countries are showing for Greece is dangerous.
"We're at a very critical juncture not just for the Eurozone but for the EU. People are suggesting that Greece is a uniquely ungovernable country, uniquely untrustworthy," Tilford said. "Whichever government is in charge of Greece over the next year or 18 months will be put in an impossible position."
Information from the Los Angeles Times, New York Times and Associated Press was used in this report.