Greece has secured a second bailout worth 130bn euros (£110bn; $173bn) and in return its lenders have attached strict conditions to the loan.
Greece has won a 53.5% reduction in its debt burden to private creditors, while any profits made by eurozone central banks on their holdings of Greek debt will be channelled back to Greece.
In return, a team of monitors will be based in Athens to ensure agreed reforms are put into place.
In addition, a special account will be opened to hold three months worth of debt repayments.
Who is paying for the bailout?
In theory, European governments are not actually paying anything for their bail-out of Greece as the 130bn euros comes in the form of loans.
The money will be lent at a low rate of interest, but still above the cost of borrowing for countries like Germany and France.
But private sector lenders - such as European banks - will lose money.
They will have to write off 53.5% of the money they are owed by Greece.
The problem is that the Greek economy is now so bad that these write offs may still not be enough to reduce Greece's debts to a level it can afford over the long term.
What's in the austerity package?
In order to secure the latest bailout, Greece has had to agree to fresh round of austerity measures.
European leaders are sceptical of Greece's ability to implement spending cuts, so they have been demanding measures that can be implemented quickly and simply.
Greece was told to agree to further cuts in government spending equal to 1.5% of GDP, cuts in pensions and thousands more civil service job cuts.
But this time, the European Commission, European Central Bank and International Monetary Fund - the so-called troika - also want Greece to act to make its economy more competitive, principally by cutting the cost of doing business in Greece.
The government was told to make its labour markets more flexible, to cut dramatically the minimum wage and to scrap a habit of paying a "holiday bonus" equal to one or two months' extra pay.
It was also told to re-capitalise its banks, while ensuring they maintain their managerial independence.
The reforms to pensions proved the most difficult to stomach, but the government now says a compromise has been reached.
Hadn't Greece already implemented austerity measures?
Greece had already agreed to far-reaching austerity measures.
Taxes will increase by 3.38bn euros in 2013, following a 2.32bn euro increase in 2011.
The increase includes a solidarity levy of between 1% and 5%, a cut in the tax-free threshold, a rise in VAT rates, and luxury taxes on yachts, pools and cars.
In the public sector, pay will be cut and many bonuses scrapped.
Some 30,000 public sector workers are to be suspended, wage bargaining will be suspended, and monthly pensions of above 1,000 euros cut by 20%.
The government also aimed to raise about 50bn euros by 2020 from privatisations by selling land, utilities, ports, airports and mining rights, but recently this target has been revised down substantially because of the worsening economy.
Will it work?
That is the 130bn-euro question. The aim is to cut the Greek government's debt from 160% of GDP to 120% of GDP by 2020.
Despite the austerity measures taken so far, the Greek government still spends more than it receives in taxes.
Some economists and Greek unions say the plan is doomed to fail. They argue that by making people poorer the measures will simply shrink the Greek economy, reducing tax revenues and increasing the deficit.
But EU leaders argue that there is no choice, that spending needs to fall even if it hurts the economy in the short term.
Furthermore, they argue that increasing competitiveness, by lowering wages for example, will attract business to Greece and thereby boost the economy and taxes.
Why is Greece in trouble?
Greece has been living beyond its means since even before it joined the euro. After it adopted the euro, public spending soared and public sector wages practically doubled.
However, while money has flowed out of the government's coffers, its income has been hit by widespread tax evasion.
When the global financial downturn hit, Greece was ill-prepared to cope.
It was given 110bn euros of bailout loans in May 2010 to help it get through the crisis - and then in July 2011 it was earmarked to receive another 109bn euros.
But that still was not considered enough.
And so, in October 2011, the eurozone asked banks to agree to a 50% "haircut" on their Greek holdings, alongside an enhanced 130bn-euro bailout.
Since then, the economic situation in Greece has deteriorated further and the new deal involves an even bigger debt write-off than previously consented to by the banks.
Although Greece's troubles are the most extreme, they highlight problems in the eurozone that also apply to some other economies.What about other indebted countries?
Many other southern European countries ran up huge debts - government debts as well as household mortgage debts - during the past 10 years. They also enjoyed rapidly-rising wage levels.
Now the bust has come, it is very hard for them to repay the debts. And the high wage levels leave their economies uncompetitive compared with, for example, Germany.
Because they are inside the euro, these governments cannot rely on their central bank - the ECB - to lend them the money. Nor can they devalue their currencies to regain a competitive edge.
Meanwhile, they are having to push through very painful spending cuts and tax rises to get their borrowing under control.
But some analysts argue this is just pushing their economies into recession, cutting tax revenues.
In the meantime, EU leaders are struggling to enhance the "firewall", in case any further countries prove unable to repay their debts.
In October, they agreed that the new European Financial Stability Fund would have up to 1tn euros to guard against future sovereign debt crises. However, the money has yet to be raised. Recently, the IMF said it, too, would have money available.
What does all this mean to the UK?
According to figures from the Bank for International Settlements, UK banks hold a relatively small $3.4bn worth of Greek sovereign debt, compared with banks in Germany, which hold $22.6bn, and France, which hold $15bn.
When you add in other forms of Greek debt, such as lending to private banks, those figures rise to $14.6bn for the UK, $34bn for Germany and $56.7bn for France.
The UK government's direct contribution to any Greek bailout is limited to its participation as an IMF member.
However, any knock-on from Greece's troubles would exacerbate the UK's exposure to Irish debt, which is larger.
And if it led to a major financial crisis, as well as a deep recession in the eurozone - the UK's main trading partner - the damage to the UK economy would be substantial.
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