Policymakers and investors seem to have taken some solace from the announcement that European financial ministers have agreed to a bulked-up rescue package to stave off Greek default. No doubt, the deal enhances the probability that Greece will be able to squeak past its major debt refunding on March 20. This is good news regarding the prospect for immediate financial strains. However, near-term challenges abound, including convincing investors to share enough losses to make the fiscal arithmetic square, bank depositors in Europe that there funds remain safe, and politicians in the richer countries that directing more resources to keep the euro project afloat is still a wise decision.

Even after navigating the near-term shoals, the long-term outlook for Hellenic fiscal sustainability remains doubtful.

Recognize that “success” requires the government work down its debt relative to nominal income from the current lofty level of around 160 percent to 120.5 percent by 2020. (By the way, the false precision in that goal, forecasting a concept that has proved so slippery as the Greek debt burden to the 1/2 percentage point nine years out, shows that there is an unreality about the exercise.) The consolidation of the government sector, the reduction in benefits, and toughened tax collection efforts will almost surely extend the ongoing Greek contraction. Such declines in income will create serious headwinds in making meaningful progress in deficit reduction, a point we made about two years ago in the Washington Post. Moreover, if the Greek government ever gets to that long-run goal, work by Carmen and Ken Rogoff has shown that debt loads even lower than that have been associated with markedly slower growth in income. Thus, the rescue offers Greece the opportunity for an extended struggle to settle for slow economic growth for an extended period. This debt crisis is not over...