ATHENS Greece's deep recession and unpredictable elections threaten to turn the biggest debt restructuring in history into yet another short-lived reprieve, although the existential threat posed to the euro zone is not what it was.
Last week's deal, under which private creditors agreed to lose most of their investments in Greek government bonds, should allow euro zone finance ministers meeting on Monday to declare they will pay their part of a 130 billion euros bailout, Greece's second in two years. The International Monetary Fund will finalize its contribution later in the week.
The private sector debt swap lopped about 100 billion euros off Greece's gargantuan debts but still leaves Athens as the euro zone's most indebted country and does not preclude a messier default or even a euro exit further down the line.
Greece's euro zone partners, exasperated by many broken promises, could be tempted to pull the aid plug if the winner of elections penciled in for late April or early May fails to reverse a poor track record on delivering reform.
At the same time, a population angry with a prolonged recession could eventually push for another cure altogether if record-high unemployment keeps increasing and EU and IMF lenders ask for even more sacrifices.
"The debt swap deal does not solve the problems of Greece at all," said Holger Schmieding, chief economist at Berenberg Bank. "Of course, without it, Greece would be in huge trouble. But Greece's problem is that it has to return to growth. Otherwise, no debt burden is sustainable."
Greece's economy is estimated to have shrunk by about 15 percent since 2008, when it plunged into its deepest post-war recession, dragged down by tax hikes and wage and investment cuts meant to put public finances back on track. More than one in ten jobs have been destroyed, leaving over half of young people unemployed.
Further belt-tightening agreed in return for a new EU/IMF bailout, such as slashing the minimum wage by a fifth, might tip the country deeper into recession and hit state revenues, making it impossible to meet the debt and deficit targets set by the lenders as a condition for aid.
"There is a high risk that more austerity will be self-defeating," said Diego Iscaro, at IHS Global Insight, warning that the social situation could become "explosive" if unemployment kept rising in a country that has been rocked by almost daily anti-austerity protests.
Under the combined weight of austerity and delays in reforms needed to cut red tape and shrink the state, recession has been consistently worse than forecast by the EU and IMF since the first bailout was agreed in 2010.
In turn, Athens has repeatedly missed its fiscal targets and fell further behind the rest of the euro zone to rank 90 out of 142 countries in the World Economic Forum's competitiveness index.
"The main reason that Greece is staying in the euro zone is because the alternative is really bad. But if you keep pressing and you don't give the economy some breathing space, sooner or later people may say that's enough," Iscaro said.
Opinion polls show Greeks still support euro membership but an increasing number are tempted to vote for parties that oppose the bailout reforms in snap elections which could take place as early as end April.
Conservative leader Antonis Samaras, who is ahead in polls, has said he would abide by the plan but has also criticized the austerity's impact on the economy and signaled he might seek to renegotiate some parts of the bailout.
Opinion polls show he is unlikely to have an outright majority, raising the prospect of prolonged uncertainty with either a repeat election or another uneasy coalition with the socialists - not a recipe to convince Greece's lenders that the political will is present to stick with the programme.
"If there are elections in April or May, global markets will remain about as nervous about Greece as they have been over the past two and a half years," said Berenberg Bank's Schmieding. "There would be a huge element of uncertainty hanging over Greece and Europe."
Even if the conservative New Democracy and socialist PASOK party were to form a new coalition committed to the bailout, they could come under huge popular pressure to change course if, during quarterly inspections, EU and IMF officials ask for yet more sacrifices, analysts warn.
"If the (EU/IMF/ECB) troika says: 'you are falling short of your plans and you need to implement an additional x billion of austerity measures,' there is chance that is the straw that breaks the camel's back," said Ben May, at Capital Economics.
The troika review programme also raises the prospect that the EU and IMF could pull the plug on funds after anyone their inspectors' three-monthly visits.
On the streets of Athens, some said the debt swap deal, which will see banks losing three quarters of the value of their Greek government bonds to cut 100 billion euros from Greece's 350 billion euro debt load, would do little to help them.
"We drowned a long time ago," said Eleni Sotiriadou, a 52-year old insurance broker.
"People here can't take it anymore. Maybe the deal gives the country some breathing space, but not for me sitting here, waiting for time to go by," she said, biding her time on a wooden bench in the central Syntagma square because appointments have become more and more sparse.
The EU and IMF, on whose aid Athens relies to stay afloat, have warned in a confidential report that the rescue plan could easily go off track and debt jump back to its pre-debt swap level if Greece falls behind yet again on reforms, or if recession is worse than expected. (r.reuters.com/qeb76s)
Even if the rescue plan does achieve its target to bring the debt down to 120 percent of GDP by 2020 from about 160 percent now, that is still much higher than is generally regarded as sustainable.
"We think there will have to be some form of more severe restructuring further down the line, that is likely to involve official creditors," said May at Capital Economics. "That would be the only way to get Greece's debt substantially lower."
Greece's poor track record in implementing reforms required under the first bailout - including missing deficit and privatization targets - means there will be very limited goodwill for any more slippages when EU and IMF inspectors arrive every three months to comb through the books.
Leaders in northern European countries could be tempted to be tougher on Greece once the 17-nation euro zone decides on a stronger debt crisis firewall, which should be in place by mid-year, if they feel the rescue fund has become big enough to protects other high debtors such as Spain and Italy from contagion.
"If Greece keeps missing targets, sooner or later the troika may lose patience and stop giving the money," said IHS Global Insight' Iscaro.
(Additional reporting by Renee Maltezou, editing by Mike Peacock)