Eurozone leaders this afternoon offered Greece some respite from its crippling debt while warning it could still face a dramatic default.
The eurozone and the IMF will provide Greece fresh loans of €109 billion, extend maturity terms on existing loans to up to 30 years and open the door for the private sector to contribute to the second bailout.
Private banks have offered a plan to exchange and roll over Greek debt that will save the country €54 billion over three years.
"We agree to support a new programme for Greece," says the accord agreed at a eurozone summit. "Greece is in a uniquely grave situation in the Euro area. This is the reason why it requires an exceptional solution."
The programme will provide loans with lower interest rates and extended maturities "to decisively improve the debt sustainability and refinancing profile of Greece."
Prime Minister Lawrence Gonzi, who attended the EU summit, welcomed the deal, describing it as 'a breakthrough'.
The deal, he said, was different from the first bailout in that the assistance to Greece would be given through the European Financial Stability Fund and not through bilateral loans.
Malta, therefore, would not be making any further advances than what was agreed in the first bailout, and the guarantees already given to the EFSF (in excess of €400m) were not being increased.
The agreement, Dr Gonzi said, had sent a positive message to the financial markets and had confirmed the strength of the European currency.
News of the deal sent the euro and stocks markets shooting up. They had earlier sunk on a warning that Greece could face some form of default under the new rescue package.
"We cannot exclude any possibility and everything should be done to prevent (a default)," said Luxembourg Prime Minister Jean-Claude Juncker, head of the Eurogroup of finance ministers.
A breakthrough became possible after the eurozone's two powerbrokers, German Chancellor Angela Merkel and French President Nicolas Sarkozy, reached a compromise just hours before the summit.
After unsettling markets earlier this week by downplaying hopes of a "spectacular" deal, Merkel was upbeat that an accord would be reached to "attack the root of the problems" of Greece's weakness.
Leaders dropped the idea of a bank tax to help fund a second Greek bailout but kept German demands for private sector involvement, even at the risk of triggering a default, diplomats said.
Germany, backed by the Netherlands and Finland, had been at odds with the European Central Bank and Paris over Merkel's demands for private investors to shoulder some of the bill for the new Greek rescue, one year after a first 110-billion-euro ($156-billion) bailout.
There are concerns that any change to the terms of outstanding Greek sovereign bonds could prompt rating agencies to declare Athens in default, with potentially dramatic domino consequences.
The draft said private bondholders would be given three choices -- a partial buyback of Greek debt, exchanging Greek bonds for new ones with longer maturities, or a "rollover" in which creditors reinvest in new Greek bonds as soon as current ones are redeemed.
The European Union and IMF's bailout to Greece last year has proved insufficient and since then, Ireland and Portugal have received their own multi-billion-euro rescues.