Two potential catastrophes hung over the global economy as the end of the year approached.  The fiscal cliff in the US could end up killing consumer demand, which would put both the US and the West on a fast track to recession.  The debt crisis in Greece, however, could have kicked out the underpinnings of the entire European economy and created a much larger crisis.  For now, however, it looks as though that crisis has been averted, as the EU and IMF announced a deal for Greece’s bailout … again:

The Greek government and financial markets were cheered on Tuesday by an agreement between euro zone finance ministers and the International Monetary Fund to reduce Greece’s debt, paving the way for the release of urgently needed aid loans.

The deal, clinched at the third attempt after weeks of wrangling, removes the biggest risk of a sovereign default in the euro zone for now, ensuring the near-bankrupt country will stay afloat at least until after a 2013 German general election.

Why is that important?  The EU relies in large part on German fiscal responsibility to fund the bailouts of its less-responsible members — and that dynamic has not been lost on German voters.  So far the Germans have played along, but their generosity won’t last forever, and their self-interest in salvaging the Greek economy looks increasingly dim with every passing incident of Greek refusal to reform significantly enough to keep debt under control.

For the moment, though, the crisis has passed, but only really for the moment.  The write-down on debt amounts to €40 billion, which lowers Greek debt to 124% of GDP.  The deal appears to set up a decision point in 2016 about another massive write-off that would lower that to “significantly below” 110%.  All of this depends on the willingness of Greece to adopt the kind of budget reforms that will quit producing massive deficits.  But is that realistic?

German Finance Minister Wolfgang Schaeuble said Athens had to come close to achieving a primary surplus, where state income covers its expenditure, excluding the huge debt repayments.

“When Greece has achieved, or is about to achieve, a primary surplus and fulfilled all of its conditions, we will, if need be, consider further measures for the reduction of the total debt,” Schaeuble said.

The political momentum in Greece has appeared to go in the opposite direction of late, but perhaps this deal will marginalize the demands for “growth measures” instead of austerity — “growth measures” being a euphemism for “state spending.”  CNN reports that the Greeks seem pleased with the agreement:

Well, it’s always pleasing when deadlines for disaster get pushed off by someone else’s intervention.  If Greece can take the opportunity for real fiscal and political reform, then the bailout will be well spent.  If not, the crisis will arrive again well before 2016.