Finance ministers from the countries that use the euro reached an agreement early Tuesday to hand Greece 130 billion euros ($170 billion) in emergency loans to help it avoid a debt default.
Nearly 100 billion euros of debt will be written off and private-sector holders of Greek debt are expected to take losses of 53.5 percent or more on the nominal value of their bonds.
Greece can now escape a March 20 deadline to make an installment payment on a 14.5 billion-euro bond, and thereby avoid becoming the first country in the euro's 13-year history to default.
Greece, which is in its fifth year of economic recession, reported last week that its gross domestic product fell 6.8 percent in 2011. The country's unemployment rate is 21 percent and the future looks extremely gloomy.
The Greek parliament on Feb. 12 approved austerity and debt-relief measures that the country's emergency-lending troika -- the European Union, the European Central Bank and the International Monetary Fund -- had demanded as a prerequisite for further loans, making it essential for Greece to avert bankruptcy. The approved measures included slashing the minimum wage, trimming a fifth of the government's work force and reducing spending on entitlements.
With national elections set for April, Greece's 16 partner nations in the euro zone have raised serious doubts as to whether any new government would be able or willing to fulfill the loan commitments and austerity measures, which are deeply unpopular and have sparked protests of Greek citizens.
Skepticism also surrounds the question of whether deep spending cuts can possibly enable Greece to ease its staggering debt load. Many economists consider austerity measures a recipe for slow growth and high unemployment, which in turn adds to the burden on private holders of the country's debt.
Ensuring debt sustainability and restoring competiveness are the main goals of the new program. Its success hinges critically on its thorough implementation by Greece, the euro zone ministers said in a statement released after marathon talks ended early Tuesday in Brussels.
The bailout conditions demanded by the troika include regular inspections to ensure Greece sticks to the agreed-on austerity targets -- an area in which the country has appeared deficient in its previous commitments with its lenders.
The euro zone finance minsters said they welcome Greece's intention to put in place a mechanism for improved tracking and monitoring of official borrowing as well as to establish special internal funds for quarterly debt servicing.