Greek deal done, money woes linger Some fear bailout may hurt Europe

BRUSSELS - European leaders’ debt plan for Greece was what markets had been hoping for, but it doesn’t spell the end of the crisis.Analysts called Thursday night’s deal a decisive step forward as it makes the region’s rescue fund able to quickly lend money, rather than wait for crises to erupt, and is supposed to reduce Greece’s debt burden instead of just buying time with loans.

Still, experts warned that Greece may need further help to handle its loans. The broader eurozone, meanwhile, faces years of paying down high government debt, shaking up weak economies and answering hard questions about how much member countries should have to pay for each others’ poor finances.

“We seem to have been pulled back from the abyss,’’ Simon Ballard, senior credit strategist at RBC Capital Markets, said yesterday. “Eurozone Armageddon does thankfully seem to have been avoided.’’

But political leaders “have not delivered a silver bullet to the sovereign debt situation.’’

This week’s deal takes huge pressure off markets in the short term by avoiding a messy debt default by Greece that could spread market turmoil as did the 2008 collapse of US investment bank Lehman Brothers.

Instead, Greece’s voluntary debt workout should lead to a manageable and temporary ruling of default, from which the country should emerge with lower debt, cheaper borrowing rates, and a better chance of paying its way.

The deal also pushes Europe’s finances closer together by allowing the eurozone rescue fund to preemptively give loans to countries experiencing early signs of trouble.

On the one hand, that will boost confidence that weak countries like Spain will not see the same market nosedive that pushed Greece, Ireland, and Portugal to need bailouts. That hope was reflected in markets, where borrowing rates for Spain and Italy slumped sharply and stocks and the euro rallied.

On the other, critics say the fund’s new powers will make profligate countries less responsible by sharing the financial responsibility for bad policies and government overspending.

Some in Germany - Europe’s effective bankroller - disparagingly call it a “transfer union.’’

“Monetary union has now become even more of a transfer and liability union,’’ said Joerg Kraemer, chief economist at Germany’s Commerzbank. “This creates incentives for unsound budgetary practices in the long run.’’

Germany’s Chancellor Angela Merkel, French President Nicolas Sarkozy, European Central Bank head Trichet, and 15 other governments cleared away their differences after market fears began spreading from the three bailed-out countries - a relatively small 6 percent of the eurozone - to much larger Spain and Italy. The possibility that rising bond market yields would sink those two country’s finances helped break a weeks-old deadlock.

Merkel won a key concession to public opinion in Germany: sacrifices from bondholders, who will take longer to get their money and receive lower interest under program worked out with representatives of the financial services industry. Germany in return yielded by agreeing to lower interest rates on eurozone bailout loans to the three countries, and on giving the eurozone’s bailout fund wider-ranging powers.