What next for Greece and the troubled euro zone?

Like a cancer patient in remission, Greece now greets every little victory with disproportionate joy, in the knowledge that it has only postponed the inevitable.

Thus, the financial mavens in Brussels and Athens may be celebrating the fact that Greece managed to avert a default and obtain agreement from over 80 per cent of its bondholders on a debt swap as a precondition for a second bailout worth euro 130 billion.

This is certainly a major achievement, since it means bondholders have taken a haircut of 53.5 per cent on the euro 206-billion debt that they hold.

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But a reprieve is not the same thing as survival; and, despite the weekend deal, the larger question of the Greek economy's ability to recover remains unanswered.

A bond-swap agreement may look great when it reduces Greek's debt burden by euro 100 billion. It looks less impressive when seen as a percentage of gross domestic product (GDP).

True, the burden falls to 120 per cent of GDP from 160 per cent -- but that still makes Greece one of the 17-member euro zone's most indebted countries.

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So Greece may have averted a default – and, in truth, bondholders had little choice but to agree – but many continue to doubt its ability to meet future obligations, given the stringent cutbacks in public spending imposed on it by the troika of the European Commission, the European Central Bank and the International Monetary Fund.

Indeed, given the fact that Greece was unable to stick to the earlier austerity package following the 2010 bailout of euro 110 billion, it could be considered unlikely that it will be able to conform to the deeper cuts being imposed this time.

The price of the second bailout includes more cuts in government spending, equal to 1.5 per cent of GDP, plus steep reductions in pensions, benefits and civil service jobs. There is some justice in these demands.

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Yet, apart from the popular domestic aversion to these conditions, the economic wisdom of austerity in the medium term can be questioned. Greece needs the economy to expand to generate revenues for debt repayment.

Unless wage and benefit cuts from the government are accompanied by a corresponding increase in private-sector dynamism, they will not achieve growth.

The Greek economy has reportedly contracted 15 per cent of its admittedly inflated size in 2008 after tax increases and cuts in wage and public spending. Unemployment has been rising steadily -- it went up from 11.7 per cent in April 2010 to a staggering 21 per cent in January 2012.

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As importantly for the euro zone, this debt swap does not address the larger question of containing the contagion. Portugal and Spain continue to be a worry.

The congratulations being exchanged by the leaders of Europe, German Chancellor Angela Merkel and French President Nicolas Sarkozy, for pushing through a bailout that is acceptable to their own domestic constituencies, might thus be overdue.

As for the Greeks, a painful process of national rebuilding lies ahead regardless. So they would do well to examine what the real costs of exiting the euro zone and reviving the drachma will be for their economy.

At the very least, that will give them monetary leverage, just as the East Asian economies enjoyed during the 1998 crisis, and which played an important part in restoring the region's growth.