The midnight oil burned in Brussels as European finance ministers, heads of state, bankers and the International Monetary Fund (IMF) try to reach an agreement to restructure Greek debt.  In the deal, private banks and insurers would accept 50 percent losses on their Greek debt holdings in the latest bid to reduce Athens’ immense debt load to sustainable levels.  Although it required more than eight hours of negotiations that did not end until 4 a.m., the deal also anticipates a recapitalization of hard-hit European banks and a leveraging of the bloc’s rescue fund, the European Financial Stability Facility (EFSF), to give it €1 trillion ($1.4 trillion).

Significant work remains to be done to assure that the rescue works as envisioned.  Several aspects of the deal, including the technicalities of boosting the EFSF and providing Greek debt relief, could take weeks to firm up; the plan to rebuild confidence after two years of crisis could unravel over the details.  “I see the main risk is that we are left waiting too long again for the implementation of these agreements,” European Central Bank (ECB) policymaker Ewald Nowotny said.  “Speed is very important here.”  According to Greek Prime Minister George Papandreou, “The debt is absolutely sustainable now.  Greece can settle its accounts from the past now, once and for all.”

European Union (EU) President Herman Van Rompuy said that the deal will slash Greece’s debt to 120 percent of its GDP by 2020.  Under current conditions, it would have soared to 180 percent.  Achieving this will require that banks assume 50 percent losses on their Greek bond holdings — a hard-to-swallow pact that negotiators now must sell to individual bondholders.  According to Van Rompuy, the eurozone and IMF — which have both propped up Greece with loans since May of 2010 — will give the country another €100 billion ($140 billion).  That’s slightly less than amount agreed in July, primarily because the banks now must pick up more of the slack.  “These are exceptional measures for exceptional times.  Europe must never find itself in this situation again,” European Commission President Jose Manuel Barros said.

While some question whether Greece will be able to meet its debt obligations by the drop-dead date, the fact that leaders were able to finally put concrete numbers to what had previously been little more than vague promises represents an important step forward.  “It’s great news that we’ve got an agreement,” said Deutsche Bank economist Gilles Moec.  “When Europe puts its heads together, they do actually begin to cooperate.”

Greece, whose crippling debt load has in principle been cut in half in the deal that Papandreou says marks “a new day for Europe and for Greece,” emerges as the biggest winner.  Although the necessary austerity measures will be tough for the Greek people to live with, the new plan has set the country on a sustainable debt trajectory, according to Moec.  “At least the deal gives Greece a fighting chance.  It’s not great, it would be much better if we could get the debt below 100 percent…but it’s doable.”

Germany, which had been the driving force behind compelling the banks to take a bigger “haircut” or write down on Greek debt, is another winner.  “If you look at the vote in German parliament outlining what Germany was going to ask for at the summit, and then you see the results of the summit, it’s basically identical,” Moec said.  German Chancellor Angela Merkel believes that the deal is a victory for Europe in general.  “Everybody was aware that the whole world was looking at this meeting,” she said.  “I think that tonight we Europeans have taken the right measures.”

Writing for Reuters, Global Economics Correspondent Alan Wheatley sees some reason for skepticism. “Greece, however, has become something of a sideshow.  Investors long ago judged that it was not just illiquid, but insolvent.  Much more critical is what the eurozone could do to prevent the debt rot from spreading to bigger, systemically important but stagnant economies, notably Italy.  Markets will have to wait for details as to how the EFSF will be scaled up; whether the likes of China will top up the bailout fund; and how operationally it will enhance the credit of member states’ new bonds.  But some analysts are skeptical.  Economists at Royal Bank of Scotland said they expected markets to re-price sovereign debt across the euro area given the size of the losses imposed on Greece.  Expressed as the ‘net present value’ of the bonds, the proposed loss will be close to 70 percent, much more than the 40 percent hit that banks had volunteered to take, RBS said.  What’s more, the EFSF will be too small to offer help to any country that might need it for any length of time.  And a promise by governments to help banks regain access to long-term bond market funding implies they will have to assume extra contingent liabilities, thus adding to their debt burdens.”

Time’s Bruce Crumley is more hopeful. According to Crumley, “Let’s hope that upbeat attitude persists, but let’s not be stunned if it doesn’t.  Because let’s be honest about another reality of Thursday’s development: it was only the most recent play by governments in a global confidence game that’s certain to shift and surge again before it’s all over.  That’s not ‘confidence game’ in the usual, illicit ‘con’ sense.  Instead it more literally describes attempts by EU leaders to inspire confidence and calm in financial markets so they’ll cease the doubt-inspired dumping of bonds, and bets against iffy sovereign debt that severely complicates efforts by eurozone officials to overcome current crisis.  To that end, the relatively timid action taken earlier by European leaders was subsumed by the far more dramatic measures adopted  – an emphatic upward ratcheting designed to prove their determination to tackle the evolving catastrophe once and for all.”