Here is the dreadful scenario that growing numbers of analysts fear: Long lines of Greeks, Spaniards and Portuguese pound on bank doors demanding to pull their money out before it is replaced by devalued drachmas, pesetas, escudos. Long-suffering Greek voters fail on June 17 to elect political parties that can form a governing coalition, and Greece takes a messy exit from the Euro. Europe’s already faltering financial system then collapses, sending the entire world into a long-lasting global depression for the new President Romney to tackle.

As one European insider put, the damage could be somewhere “between catastrophic and Armageddon,” while Mexico’s former central banker, Guillermo Ortiz, who was a leading candidate to head the International Monetary Fund (IMF), warned that a Greek exit from the Euro could have “an even bigger impact” globally than the Lehman bankruptcy. “If Greece leaves the eurozone, it could detonate a global financial crisis even worse than the 2008 credit crunch, dry up global trade financing and spur another U.S. recession.”

Seeing all this before the Camp David summit, President Obama joined with France’s mildly socialist president François Hollande in calling for new measures to stimulate European growth, against German Chancellor Angela Merkel’s insistence on austerity über alles. Obama went even further after the NATO summit in Chicago and urged European leaders to recapitalize their notoriously weak banks — and quickly. But his foresight will mean little if they do not come up with a hard-hitting and fast-moving plan of action, which their Wednesday night summit in Brussels failed to do.

Except for minor concessions toward growth, Merkel is standing firm on growth-destroying budget cuts. The “growth agenda” that Hollande and his Italian and Spanish allies put on the table looks like far too little and much too late to stop a global train wreck. And the bleary-eyed announcement early Thursday morning that European Council president Herman von Rompuy would draft a new plan for greater economic unification to back up the Euro looks like a belated step in the right direction that Europe should have taken years ago, preferably before creating the single currency, as American economists warned at the time.

In the meantime, the Euro is falling, investors are dumping Euro assets, and all eyes are on the June 17 do-over of Greek legislative elections, in which European leaders are playing a double game that will come back to haunt them. Publicly, they reaffirm their commitment to “do everything” to keep Greece from leaving the eurozone while framing the elections as “a referendum” for the Greeks to decide whether or not they wish to remain on the Euro. The major media echo the referendum line, and the once-great Le Monde even ran a front-page editorial by its director boldly proclaiming: “The Euro or the Drachma? It’s up to the Greeks to choose.”

In fact, all this poses a premeditated and not at all disguised threat to Greek voters: Back the conservative New Democracy and the Greek Socialist Party (PASOK), who conspired with Northern European banks and exporters to create the Greek mess and then agreed to the no-hope bailout deal forced on them by the European Union, the European Central Bank and the International Monetary Fund (IMF). Back the corrupt old guard who will do our bidding, the European leaders threaten, or we’ll push you even harder. And stay away from the left-wing SYRIZA coalition and its surprisingly effective leader Alexis Tsipras, a 37-year-old former student protest leader and Euro-communist.

Why threaten the Greeks? In their first election on May 6, SYRIZA came in second, and the latest polls now show them winning, but still without sufficient votes to form a government. They would, however, have the votes to make it impossible once again for the old guard to form a governing coalition. The party’s growing strength terrifies investors and poses a problem for European leaders, especially those from nominally socialist or social democratic parties that face similar challenges from a more radical Left.

Contrary to the pretense that Tsipras and SYRIZA want to leave the Euro, they have said again and again that they want to keep the Euro. They know that as many as 75 to 80 percent of the Greeks favor both the common currency and the European Union, and they might well refuse to leave even if the rest of Europe wants them out. Nothing in existing treaties permits expelling any country from the eurozone, and this gives Tsipras and SYRIZA a powerful threat of their own in rejecting the bailout deal, which has destroyed the Greek economy and squeezed ordinary Greeks beyond all endurance.

“We want to force European leaders to face reality,” Tsipras said Monday in Paris in the company of Jean-Luc Mélenchon, the leader of France’s Left Front, which is challenging Hollande’s party in legislative elections on June 10 and 17. “We want to raise awareness that we cannot drive any people in Europe into voluntary suicide.” If not stopped in Greece, Tsipras warned, the same treatment “will be exported to other European countries.”

In refusing even to renegotiate the “hellish” bailout deal, Tsipras is demanding that Europe and the IMF back down, an alternative that European leaders and their friends in the media portray as completely beyond reason. “It is not acceptable for a small country, by its refusal to play by the rules of the game, to continue to put the whole continent in danger,” concluded the front-page editorial in the pro-Hollande Le Monde. “It’s up to the Greeks to choose.” But if they make the wrong choice, the consequences will follow. And “without any qualms.”

That, in all its imperial splendor, is the threat Greek voters now appear to be ignoring. As Tsipras insists, Europe and the IMF will back down, and elements of their retreat are already visible. Hollande, who refuses even to meet with Tsipras, has suggested a willingness to give the Greeks additional time to cut their public spending, while a senior adviser to the German finance ministry suggests that Merkel will blink and make concessions to both Hollande and the Greeks after the elections. But nothing we’ve seen is anywhere near enough to put the Greeks – or the rest of Europe – back on the path to growth and away from leaving the Euro. That would take more than anything now on the table, and the smart money is betting Greece will leave the Euro by New Years Day 2013, with all the damage that will bring.

Cameron, whose own economic policies have worsened the daily grind dragging down most Brits, may be sobered by what happened over the weekend in France and Greece – as well as his own poll numbers. Britain’s conservatives have been taking a beating.

In truth, the choice isn’t simply between budget-cutting austerity, on the one hand, and growth and jobs on the other.

It’s really a question of timing. And it’s the same issue on this side of the pond. If government slices spending too early, when unemployment is high and growth is slowing, it makes the debt situation far worse.

That’s because public spending is a critical component of total demand. If demand is already lagging, spending cuts further slow the economy – and thereby increase the size of the public debt relative to the size of the overall economy.

You end up with the worst of both worlds – a growing ratio of debt to the gross domestic product, coupled with high unemployment and a public that’s furious about losing safety nets when they’re most needed.

The proper sequence is for government to keep spending until jobs and growth are restored, and only then to take out the budget axe.

If Hollande’s new government pushes Angela Merkel in this direction, he’ll end up saving the euro and, ironically, the jobs of many conservative leaders throughout Europe – including Merkel and Cameron.

But he also has an important audience in the United States, where Republicans are trying to sell a toxic blend of trickle-down supply-side economics (tax cuts on the rich and on corporations) and austerity for everyone else (government spending cuts). That’s exactly the opposite of what’s needed now.

Yes, America has a long-term budget deficit that’s scary. So does Europe. But the first priority in America and in Europe must be growth and jobs. That means rejecting austerity economics for now, while at the same time demanding that corporations and the rich pay their fair share of the cost of keeping everyone else afloat.

President Obama and the Democrats should set a clear trigger — say, 6 percent unemployment and two quarters of growth greater than 3 percent — before whacking the budget deficit.

And they should set that trigger now, during the election, so the public can give them a mandate on Election Day to delay the “sequestration” cuts (now scheduled to begin next year) until that trigger is met.

It’s far from a universal opinion. Greek leaders lauded the agreement, naturally, saying it saved the country from a chaotic default. Others add that Greeks — despite the occasional violent protest against austerity measures — grudgingly accept that reforms are necessary.

Still, more of the same won’t cut it, said Costas Michalos, president of the Athens Chamber of Commerce and Industry.

“It’s a bad rescue package,” he said. “It’s not the right mixture of economic policies. If we follow the same economic policies of the past two years, there will be no other option than default, which I’m sure no one wants.”

The new loan package — Greece’s second massive bailout in as many years — aims to finally fix the country’s debt problems and restore its battered economy. It requires wage cuts and public sector layoffs, and strives to make the economy more competitive, which would attract investment.

A Eurogroup statement issued after the vote Tuesday in Brussels said the program is a “comprehensive blueprint” for debt sustainability by 2020 and economic growth. The success, it noted, “hinges critically on its thorough implementation by Greece,” no doubt a reminder of the country’s track record of missing reform targets.

“One can’t help but get the feeling that everyone involved is going through the motions, doing what they feel they have to do, rather than what they want to or what they believe in,” Sony Kapoor, managing director of Re-Define, a London-based think tank, said in a statement. “Confidence in the success of what has been agreed is rather low.”

Greece “will almost certainly” need yet another bailout, Kapoor added. “The troika have had to do some arithmetic gymnastics in order to make the numbers add up but their optimistic assumptions are unlikely to hold.”

Yet, for all their tough talk about cutting off the free-spending Greeks, the euro zone countries ultimately chose the safe route. The “comprehensive blueprint” helps Greece but also safeguards financial stability “in the euro area as a whole,” the Eurogroup statement said.

The new package hinges in part on private bondholders taking a nominal 53.5 percent loss, which will wipe out more than $140 billion from Greece’s overall debt. The IMF warned back in December that unless there’s near-universal voluntary participation by the bondholders, it would be hard to achieve debt sustainability by 2020.

Greece is expected to take extraordinary efforts to repay its creditors. It plans to amend its constitution to prioritize repayments. Also, the lower-valued bonds to be issued to private investors will be governed under English law. That provides stronger protections for investors.

Prime Minister Lucas Papademos has been criticized in some circles for conceding those guarantees, but University of Piraeus finance professor Dimitris Malliaropulos sees the other side.

“That, for me, is a guarantee that Greece will stay in the euro,” he said, adding that the commitment to the euro should improve investor sentiment.

Countries that default usually can devalue their currency, which makes exports cheaper, boosting growth. But with Greece ensuring euro repayments to lenders, there’s no incentive to default, Malliaropulos said.

“If you leave the euro, you should do it now — before the debt exchange,” he said.

The swap is scheduled to be complete in early March. If that and other conditions are met, Greece expects to receive bailout cash — avoiding default — before nearly $19 billion in bond repayments are due later in the month.

Petros Doukas, a former deputy finance minister, said he’s confident Greece will stay on course. He advocates for a larger debt write-off and a Marshall Plan-style spending package by the European Union and the United States — an idea he acknowledges is unlikely to occur.

The optimism, he said, stems from acceptance by politicians and average Greeks that there’s no turning back.

“Whoever thought that pensions and salaries could be reduced? It was unprecedented thinking,” Doukas said. “People complain about it, but they accept it.”

A potential curveball is an election planned in late April. Papademos is an unelected technocrat whose job is to shepherd Greece through the bond swap and bailout negotiations. He’s currently leading a coalition government that includes Greece’s two large parties, the conservative New Democracy and the Socialist PASOK.

Leaders of both parties have signaled their post-election commitment to carry out the reforms demanded by international lenders. Polls show New Democracy leading, but likely in another coalition government.

“The politics are a major risk for the Greek economy,” Malliaropulos said. He noted that Greece has had only a few coalition governments and “they didn’t go very well.”

Tuesday’s agreement among euro zone finance ministers came after another tense bout of all-night negotiations at the end of months of bickering between Brussels, Berlin and Athens on whether the Greek government could be trusted to make good on austerity pledges given in return for the rescue funding.

“In the past two years and again tonight, I’ve learnt that marathon is indeed a Greek word,” said the EU’s Economic Affairs Commissioner Olli Rehn. “But in the end we came to an agreement.”

The deal is certainly a major achievement in the battle to get both Greece and the whole of the euro zone out of their economic mess. But nobody has any illusions that the euro zone is anywhere near the finishing line of its long-distance race to get out of the economic hole.

The nuts and bolts of the deal mean that the EU and International Monetary Fund will hand over 130 billion euro in loans so Greece can meet debt repayments due in March.

Greece’s private creditors have been squeezed into agreeing to take a loss of 53.5 percent on their Greek bonds — which is expected to translate to debt relief of a further 100 billion euros. Any profits that the European Central Bank or other EU nations make from Greek bonds will be channelled back to Athens.

“We have reached a far-reaching agreement … to secure Greece’s future in the euro area,” said Jean-Claude Juncker, Luxembourg’s prime minister who chaired the 14-hour overnight talks in Brussels.

In return, Greece has agreed to another round of wage, pension and job cuts which are designed to see the country’s debt drop from the current level of 160 percent of economic output to 120.5 percent by 2020.

Athens will also agree to an unprecedented level of oversight of its economy, including permanent EU monitors in Athens and the creation of a special account that will make sure the international funds are used for debt repayments — until the country changes its constitution to make repayment a priority.

By heading off the immediate threat of a Greek default, the EU has provided a short-term solution to the most pressing threat to the euro zone.

However, Tuesday’s agreement does little to address the underlying problem of Greece’s shrinking economy and lack of competitiveness.

Some estimates see another 10 years of recession on top of the five Greece has already suffered as it struggles to rein in its debt. An internal EU report leaked to journalists in Brussels on Monday painted a gloomy picture that warned more bailouts may be needed unless government reforms start to produce growth.

It’s by no means clear whether the Greek people will be ready to accept the prospect of seemingly endless austerity. The anger expressed in the regular riots on the streets of Athens will be tested in elections in April, where parties on the far left and right who oppose the austerity-for-bailout deals are expected to do well.

Meanwhile, Spain, Italy and, in particular, Portugal will be hoping the respite agreed for Greece will boost confidence in the wider euro zone. They will also be fearing that with Greece off the hook for a while, sceptical markets will be looking for a new outlet for their default fears.

Around 150 shops were looted and over 40 buildings, including the Attikon, a 19th-century theater-turned cinema, were torched. Unrest also flared in the second largest city of Thessaloniki, and on the islands of Corfu and Crete.

The violence may have been perpetrated by a minority, but there is little doubt that the onslaught of yet more cuts to wages, spending and public jobs is massively unpopular in Greece.

And the crisis is far from over. The Greek government will be under pressure to deliver on the promises it has made to the international troika of lenders — the European Central Bank, European Union and International Monetary Fund — if it is to secure the 130 billion euro ($172 billion) bailout it needs to evade default.

The next hurdle for Greece is the meeting of euro zone finance ministers on Wednesday. The government, headed by Prime Minister Lucas Papademos, will have to convince the Eurogroup that Athens can come up with yet another 325 million euros in budget savings after political leaders refused to cut pensions. The troika is also demanding written commitments from politicians to implement the deal after April elections.

Athens is also expected to inform the euro zone ministers of a planned debt swap deal with private lenders, which should slash 100 billion euros from Greece’s massive debt burden.

Europe’s Economic Affairs Commissioner Olli Rehn welcomed the parliamentary vote as a “crucial step” on Monday, adding that he was confident that the Greeks would identify the concrete measures for the further 325 million in cuts before Wednesday’s meeting.

German Economics Minister Philipp Roesler cautiously welcomed the Greek parliament’s move but made it clear that German approval of the bailout was not inevitable. “Now we need to wait and see what comes after the legislation,” Roesler told public broadcaster ARD.

“We have taken one step in the right direction but we are still far from the goal,” he said.

Berlin is waiting until the troika release a report on Greece’s debt sustainability before the Bundestag votes on whether to back the bailout on February 27.

Many countries in the euro zone, particularly Germany, are wary of ploughing more money into Greece based on the latest pledges, considering the commitments it made in May 2010 for the first bailout of 110 billion have not been kept.

Greece has struggled to stick to the troika’s targets to cut the deficit while it continues to grapple with the affects of five years of recession.

Now it is being forced to implement even fiercer cuts, which critics say will just push Greece further into a downward spiral. On Sunday the Greek parliament backed the package, including a 22 percent reduction in the minimum wage and 150,000 job cuts in the public sector by 2015.

Despite the refusal of 43 members of the coalition parties to back the deal, the legislation still passed comfortably with 199 votes in favor and 74 against. The two biggest parties – the socialist PASOK, and conservative New Democracy – backed the deal, while the right-wing populist LAOS party refused to do so, and withdrew its support for the technocratic government.

“The full, timely and effective implementation of the program won’t be easy,” Papademos told parliament on Sunday. “We are fully aware that the economic program means short-term sacrifices for the Greek people.”

With a 14.5 billion euro bond repayment due on March 20 the pressure has been on to get a deal in place to avoid a Greek bankruptcy.

However, the austerity measures that are a pre-condition of the bailout money, leave little prospect of Greece returning to a path of growth any time soon.

“Yesterday’s vote in the parliament may have saved the country temporarily from default, but the Greek economy is going bankrupt and the country’s political system is failing,” the head of the Greek Commerce Confederation, Vassilis Korkidis, said in a statement.