London Europe's plan for a new bailout of Greece may buy the country only several more months' breathing space before it again has to confront the prospect of default or a radical restructuring of its debt.
A pledge by Euro zone finance ministers on Monday to pay a 12 billion euro ($17.2 billion) tranche of emergency loans in July -- provided the Greek parliament first passes new austerity steps -- is expected to keep Greece afloat into September.
But the ministers' plan for a second bailout takes the same approach as the first rescue, launched in May 2010: it does not include direct steps to cut Greece's debt pile and merely tries to stave off default until Athens can reform its budget and the Greek economy starts growing its way out of trouble.
This approach began to fail within nine months of the launch of the first bailout, as Athens missed its debt and growth targets by big margins, and political support for austerity inside Greece has weakened since last year.
So markets will continue worrying about the risk that political and economic pressures will push Greece into a more radical solution: a scheme to slash its debt by imposing losses on its private and official creditors.
There will be many potential triggers for such an event between now and late 2014, when the new bailout is expected to end and it is hoped Greece will be able to resume funding itself in the markets.
The European Union and the International Monetary Fund hold quarterly reviews to decide whether Greece has made enough progress to obtain the next tranche of its emergency loans; uncertainty over the June tranche unsettled markets last week. The next review is to be conducted by end-September.
General elections will be held in Greece by October 2013, and the government's decisions may become dominated by them well before then. If Prime Minister George Papandreou keeps losing support in parliament, early elections cannot be ruled out.
Papandreou announced on Sunday that a referendum would be held this autumn on electoral and political changes, including the responsibilities of ministers. A defeat for the government in this could further undermine political support for austerity.
Like the first bailout, a 110 billion euro loan package, the second bailout will include huge amounts of official aid -- perhaps an additional 60 billion euros, official sources say. Both plans envisage Greece raising tens of billions of euros by selling state assets, though the second bailout will attempt to accelerate this moderately.
The main difference between the plans is the inclusion of the private sector in the second. If officials can solve the legal and technical problems, private investors will maintain exposure to Greece by voluntarily buying about 30 billion euros of bonds as their current holdings mature, the sources say.
But this step is more useful politically than economically. It limits the burden which official creditors must assume, helping Europe's donor governments justify the second bailout to their taxpayers, but it does not cut Greece's debt.
That leaves heavy pressure on Greece to pay down debt with tax revenues generated by economic growth. Here the outlook is grim; the EU, the IMF and the European Central Bank expect the economy to shrink 3.8 percent this year, worse than the 3.0 percent assumed in the first bailout plan, and some private analysts predict a contraction of around 5.0 percent.
Although the bailouts require Greece to introduce regulatory changes, labor market reforms and other steps to make its economy more competitive, it is still not clear if these will be enough to offset the fact that as a member of the euro zone, Greece cannot cut interest rates or depreciate its currency.
Michael Diekmann, CEO of Europe's largest insurer Allianz, suggested in May that "we need an industrialisation plan for Greece, a type of Marshall Plan. European labor and production need to be shifted to the country."
He was referring to U.S. aid to Europe after World War Two, which rebuilt economies not only through emergency loans but also through industrial assistance. So far, the EU does not appear to be thinking in those terms.
Coinciding with the new bailout, Papandreou is trying to make a fresh start politically by reshuffling his cabinet last week and calling a confidence vote in parliament next Tuesday.
These steps look likely to ensure parliament passes the austerity steps needed to win the next tranche of aid. But it is less clear that replacing technocratic finance minister George Papaconstantinou with powerful party insider Evangelos Venizelos will ensure Greece sticks to fiscal reforms in the long run.
Venizelos has already talked of adjusting the reforms for the sake of social justice. Papandreou also appointed Pantelis Oikonomou, an outspoken opponent of Greece's current bailout, as deputy finance minister.
The depth of public opposition to austerity was shown by a public opinion poll in Sunday's edition of To Vima newspaper. It found 47.5 percent of respondents wanted parliament to reject the reform package and for Greece to hold early elections, while 34.8 percent wanted the package to be approved.
Meanwhile, political support for the bailout strategy is not solid within some European donor countries, including Germany, the key contributor.
So if the second bailout does not appear to be working, pressure could grow for a more radical solution that forces private bond holders to accept large reductions in the value of their principal, known as "haircuts."
"Experts have been telling me for a year that a Greek restructuring is necessary. Now is the time for private creditors to start to contribute," Horst Seehofer, the head of the Bavarian wing of German Chancellor Angela Merkel's conservatives, told Der Spiegel magazine.
Finance expert Manfred Kolbe from Merkel's Christian Democrats told the magazine: "We need a haircut, and it will not be voluntary.