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Greek vote a big step but debt crisis lives on: analysts

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(BRUSSELS) - A deal to save Greece from default, boosted by a vote in Athens agreeing more austerity, marks a turning point in the debt crisis, but the outcome is far from clear, analysts warn.

Four months after eurozone leaders pledged to ring-fence Greece's finances, public and private partners at home and abroad look finally to have opted to keep the eurozone intact, almost two years after a first, failed bailout attempt.

The new rescue package, due to be endorsed by eurozone finance ministers on Wednesday, effectively "closes one crisis chapter, although the crisis is by no means be overcome," Janis Emmanouilidis, the senior analyst with leading Brussels think tank, the European Policy Centre, told AFP.

"Only time will tell whether Greek debt will in the end reach sustainable levels and whether the country will be able to push the 'restart' button," he said, citing "a danger that governments might become complacent, after the crisis has moved from 'hot' to 'cold'."

Greek deputies defied 100,000 demonstrators in Athens and Thessaloniki to pass late on Sunday another round of stringent budget measures sought by Greece's international creditors in return for a 130-billion-euro bailout ($172 billion at Monday rates).

And yet in China, an ever more visible investor in Greece and other eurozone countries sucked in by contagion as the debt crisis spread last summer, warned on Monday that the eurozone debt crisis was still at a "critical juncture."

"I'm really wondering now whether so much damage has been done that this marriage no longer can be rescued," said Erik Nielsen, chief economist with Milan-based UniCredit.

"Nobody can doubt that Greek society is on the edge -- and nobody should doubt the profound exasperation that has developed among European policymakers," he added, noting a "re-emergence of stereotyping among European nationals" as "possibly the single biggest casualty of this crisis."

Nielsen worries that the new bailout will again prove too small, and concludes that "while the old 'fear factor' of default will be less prominent in future negotiations, the ultimate downside of Greece sliding out of the eurozone... will still be there."

Many remain concerned, Paul Donovan of UBS saying only that "an orderly rather than a disorderly default has been achieved."

According to Lutz Karpowitz of Germany's Commerzbank, shifting political sands means the parliamentary green light can only be taken as valid for the short-term.

"Considering the explosive situation in Greece, it would hardly come as a surprise if those opposing the reforms were to take control of the country in April," he said of a planned general election on hold while the default question is resolved.

"In that case everything would start all over again," he maintains.

Ironically, the hardest-line proponents of the European Union austerity pill are making political gains -- Chancellor Angela Merkel's party logging its best showing in German polling last week since winning a second term in 2009.

Dutch Prime Minister Mark Rutte has actively played the Greek default card, saying the eurozone can withstand an event considered fatal 18 months ago.

A big question is how French President Nicolas Sarkozy will fare in his re-election bid, with a shoulder-to-shoulder Merkel identified by the Elysee incumbent as a winning ally despite the historic intrusion of a German leader into French politics.

Bond traders who had piled pressure on Italy and Spain after successive bailouts of Greece, Ireland and Portugal have eased the pressures on eurozone leaders -- largely thanks to central bank-led moves to "stabilise" a global economy facing renewed recession.

While the impact of new, "technocratic" EU management on the ground in places like Athens fuels uncertainty among peripheral eurozone states, leaders can be seen to have assembled their jigsaw response.

All-but two European Union states agreeing to bind future governments to collective fiscal discipline, which the head of the European Central Bank (ECB) saw as the birth of a transfer union as in the United States.

Britain and the Czech Republic are sitting that treaty out for the moment, but even they have supported efforts to boost a financial firewall for major emergencies, up for debate next month.

"Some key pieces are falling into place," says Holger Schmieding of Germany's Berenberg.

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