By a wide margin, the Greek parliament passed a new austerity package on Sunday that will cut deeply into every aspect of Hellenic life. In addition to the steps taken in 2010 and 2011, dramatically lower public payrolls and government spending will match private sector wage cuts. Minimum wage will be slashed by 22 percent and pensions will be reduced. The immediate impact of these measures will be painful. Following a protracted period of contraction, the Greek economy will shrink again in 2012 and early 2013. Barring a self-reinforcing cycle of contraction or devolution into political chaos, it will return to a weak pace of expansion the following year.

In return for Greece’s effective concession of sovereignty, Eurozone finance ministers will meet in Brussels on Wednesday to give assent to the latest rescue package. Provisions of the deal include €130 billion in funding from the European Union and the International Monetary Fund. In an effort to trim Greek indebtedness by more than a quarter, private bondholders will be asked to internalize a 50 percent write-down on the face value of their holdings. Among the deal’s significant risks, that swap invitation may not sit well with creditors, jeopardizing their voluntary participation in the rescue. 

For all the reasons to be skeptical, hope springs eternal. In early Monday trading in Tokyo, markets signaled a modestly positive assessment of the deal’s potential to avert a pan-European crisis.  The Nikkei and other Asian markets traded higher, in spite of news that the Japanese economy shrank in the fourth quarter. The euro and futures on the S&P 500 were both slightly higher. A muted response is appropriate. The various challenges to the rescue deal’s implementation are clearly observable in the streets of Athens, where riots overtook the city this weekend and where protestors have set dozens of buildings ablaze.

Public anger will find a more efficient and potentially disruptive channel in the coming weeks. The government of Prime Minister Lucas Papademos won support for the deal by committing to new elections, expected in April. But key opposition leaders have already called for the deal to be renegotiated once the new parliament convenes. Ultimately, this past weekend’s events do not bring the debt crisis to closure. Greece is only a symptom of a systemic issue that remains unaddressed. And so Europe demands our continued attention. Contained, the challenges on the Continent have benefited US property investors by pushing risk-free rates lower. Unchecked, those same challenges will spill over the Eurozone's borders, increasing threats to growth across the globe.