European leaders managed to dispel mounting fears about the creditworthiness of eurozone debt on Thursday when they agreed to another €109 billion bailout for ailing Greece. Analysts wonder whether it amounts to more than a temporary fix though.

With Italy and Spain on the verge of being drawn into the whirlpool of Europe’s sovereign debt crises this month, government leaders finally enacted a host of measures which they had previously dismissed as unthinkable. Interest rates on the bailout loans to Greece, Ireland and Portugal were cut substantially while their maturity was doubled; these funds were allowed to buy back bonds while eurozone members agreed to help authorities shore up bank capital with additional financing.

Some €20 billion will probably be set aside to buy back up to €32 billion of Greek bonds at just over 61 cents on the euro. Investors would thus be forced to contribute some €12.6 billion to the operation.

Eurozone officials had been contemplating private-sector involvement in the next round of financial aid for Greece in order to win political support from Euroskeptic nations like the Netherlands and Slovakia as well as Germany which is the single largest contributor to a multibillion euro stabilization fund that also lends to Ireland and Portugal.

Although the Europeans deny it, the trim in debt payments amounts to a partial default and will likely be treated as such by credit rating agencies. The European Central Bank long argued against any policy that could bring about a Greek default but its president, Jean-Claude Trichet, won assurances of “credit enhancement” from the political leadership which should allow Greek banks to continue to get financing worth abound €100 billion from Frankfurt.

The International Monetary Fund, which is also involved in Athens’ financial rescue operation, applauded the eurozone countries for continuing “to provide support to countries under programs until they have regained market access.” These “programs” involve mass spending cuts that largely affect public-sector workers in Greece but simultaneously dampen private-sector growth forecasts due to an inevitable decline in consumer demand and expected tax hikes.

Perhaps the largest reform effort initiated this week was the expansion of the European Financial Stability Facility which will now be more flexible to react with short-term lines of credit when a financial crisis happens in the eurozone. Germany and the Netherlands previously blocked such changes, fearing permanent bailouts. Their national parliaments will have to approve the changes before they can come into effect. Slovakia reportedly warned on Thursday that its legislature might not vote in favor of a more flexible stability fund. It previously refused to help bail out Greece.

French president Nicolas Sarkozy nevertheless hailed the agreements as big step toward the creation of a “European Monetary Fund” and “economic government” throughout the eurozone. He relished the notion of exacerbating tension between European Union states that are in the single currency bloc and those that aren’t. Poland, especially, has been frustrated but as Sarkozy pointed out, striking a deal with 27 instead of seventeen leaders would have been nigh impossible yesterday.