After 13 hours of talks, ministers finalised measures to cut Athens' debt to 120.5 percent of gross domestic product by 2020, a fraction above the target, securing a second rescue in less than two years in time for a major bond repayment due in March. "We have reached a far-reaching agreement on Greece's new programme and private sector involvement that would lead to a significant debt reduction for Greece ... to secure Greece's future in the euro area," Jean-Claude Juncker, who chairs the Eurogroup of finance ministers, told a news conference. Greece will be placed under permanent surveillance by an increased European presence on the ground, and it will have to deposit funds to service its debt in a special account to guarantee repayments.
The 5 am deal (0400 GMT) was hailed as a step forward for Greece, but experts warned that Athens will need more help to bring its debts down to the level envisaged in the bailout and will remain worryingly "accident prone" in coming years. By agreeing that the European Central Bank would distribute its profits from bond-buying and private bondholders would take more losses, the ministers reduced Greece's debt to a point that should secure funding from the International Monetary Fund.
Italian and Spanish bond yields fell amid relief among investors that a threat to the wider euro zone had been avoided, although expectations of an agreement had been largely priced into foreign exchange and stock markets. "It's an important result that removes immediate risks of contagion," Italian Prime Minister Mario Monti told a news conference.
While the deal provides time for the euro zone to put new crisis measures in place over the coming months, it means Greece will struggle for years without economic growth. The austerity measures imposed on Athens are widely disliked among the population and will put pressure on politicians who must contest an election expected in April.
Further street unrest could test politicians' commitment to cuts in wages, pensions and jobs. Greece's two biggest labour unions called a protest in Athens on Wednesday. An opinion poll taken just before the Brussels deal showed that support for the two mainstream parties backing the rescue had fallen to an all-time low while leftist, anti-bailout parties showed gains. Anastasis Chrisopoulos, a 31-year-old Athens taxi driver, saw no reason to cheer the deal.
"So what?" he asked. "Things will only get worse. We have reached a point where we're trying to figure out how to survive just the next day, let alone the next 10 days, the next month, the next year." Conservative leader Antonis Samaras, a strong contender to become next prime minister, said the rescue package's debt-reduction targets could only be met with economic growth.
"Without the rebound and growth of the economy ... not even the immediate fiscal targets can be met, nor can the debt become sustainable in the long-term," he said during a visit to Cyprus. Parliaments in three countries that have been most critical of bailouts - Germany, the Netherlands and Finland - must now approve the package. German Finance Minister Wolfgang Schaeuble, who caused an outcry by suggesting that Greece was a "bottomless pit", said he was confident it would be passed.
Many economists question whether Greece can pay off even a reduced debt burden, suggesting the deal may only delay a deeper default by a few months. Swedish Finance Minister Anders Borg said: "What's been done is a meaningful step forward. Of course, the Greeks remain stuck in their tragedy; this is a new act in a long drama.
"I don't think we should consider that they are cleared of any problems, but I do think we've reduced the Greek problem to just a Greek problem. It is no longer a threat to the recovery in all of Europe, and it is another step forward." Jennifer McKeown, senior European economist at Capital Economics, said: "The austerity measures it will have to implement and increased monitoring by the troika amidst public outrage will make things harder and drive it deeper into recession. There is a risk of a euro zone exit later this year."