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Geert Vanden Wijngaert, Associated Press
French President Nicolas Sarkozy speaks during a media conference after an EU summit of eurogroup members at the EU Council building in Brussels on Thursday, July 21, 2011. Eurozone leaders are moving closer to signing off on a second bailout for Greece but markets are fretting that any deal that emerges later Thursday may imply a Greek debt default after a plan to slap a tax on banks appears to have been shelved.

BRUSSELS — European stock markets cheered eurozone leaders' decision to give Greece a second bailout and boost their bailout fund with new powers to contain the raging debt crisis.

The deal will still leave Greece with a mountain of debt, and Europe with chronic problems of overborrowing, shaky banks and uneven growth.

But investors cheered the leaders' move to materially reduce Greece's debt pile, rather than just give it time to reform its economy.

Greece will get €109 billion ($156 billion) in new financing in a complex package that includes new loans, buybacks of Greek debt, and credit guarantees under the deal agreed Thursday by the leaders of the 17 countries that use the euro.

The leaders met under pressure from financial markets, which have driven up borrowing costs for larger economies such as Spain and Italy. The eurozone has already had to bail out Greece and indebted Portugal and Ireland when bond markets refused to loan them money at rates they could afford.

Crucially, more than a year and a half after Greece trigged a eurozone-wide crisis by admitting its finances were broken, the deal attempts to reduce the debt pile crushing the country. Until this week, European rescue efforts had relied on hopes that a turnaround in Greece's economy would eventually reduce the debt.

Greece's debt load reached a staggering 143 percent of economic output at the end of last year and is headed for 160 percent as the country's economy worsens.

The European plan will help ease Greece's burden by cutting interest rates and extending repayment on bailout loans, and by asking Greek bondholders such as banks and investment and pension funds to accept less than the full value of their investments through bond swaps and rollovers. Those transactions that will give them bonds that pay less interest — around 4.5 percent on average — over a much longer period of 30 years.

Although eurozone officials call them voluntary, those deals will probably lead to Greece being considered in default on its obligations for at least a short period of time — a common occurrence in the developing world, but unprecedented for a member of the wealthy eurozone.

The deal gives Greece breathing room — since its government is now fully financed through 2014. The leaders also gave the eurozone's bailout fund the power to quickly backstop a country that runs into trouble borrowing money to roll over its debts. That is aimed at keeping the crisis from drawing in other countries such as Italy and Spain, which are too big to be bailed out.

While crediting leaders for a step forward, analysts were still questioning Friday whether Greece's debts are still too big to be repaid.

"Our impression is that the debt reduction will be significant, but we do not think it will take public debt below 100 percent of GDP, which is often perceived as necessary to achieve sustainable finances," said Joerge Kraemer, chief economist at Commmerzbank.

Kraemer said basic problems remain, such as lagging growth and poor business conditions in the bailed-out countries: "This does not mean that the crisis is over."