Europe Debt Plan Relieves Pressure

BRUSSELS—With a new €109 billion ($157 billion) bailout for Greece, European leaders broke from their recent string of slow-paced half-measures to launch a frontal attack on a debt crisis that threatens to engulf the troubled country.

But the greatest test is still to come: Does Europe yet have the tools to block the crisis from spreading deep into the Continent's core?

Economists and analysts broadly hailed the Greece package, which provides the country with much needed long-term cash and places some of the bailout's burden on the shoulders of Greece's private creditors.

Still, details of the plan made plain that it would do little to immediately reduce Greece's huge stock of government debt—leading to fears that Greece could again flare up as the country struggles to meet its heavy burden.

And economists are skeptical that Europe is prepared to head off trouble in other countries. Ireland and Portugal, the other bailout recipients, were given more time to repay rescue loans at a lower interest rate, but saw no other relief. The wider euro-zone bailout fund, given more authority to intervene pre-emptively before a country reaches the verge of bankruptcy, didn't get any more money to do so.

"It is a courageous package for Greece, but the market is moving beyond the solvency crisis in specific countries to looking at the potential threat to the euro area as a whole," said Silvio Peruzzo, European economist at the Royal Bank of Scotland in London. "The elements needed to fight a systemic crisis were not delivered."

European stocks rallied Friday on the news of the debt deal, with banks enjoying some of the biggest gains. The Stoxx Europe 600 index rose 0.6%, for its third consecutive gain.

In the deal, Europe's leaders went further than they were accustomed to. German Chancellor Angela Merkel, who once insisted that aid be provided to troubled countries only on punitive terms as a last resort, opened up to pre-emptive lending at charitable rates. And the ensemble of euro-zone countries reluctantly accepted that Greece faced a solvency problem: It simply could not pay back all of its debts.