Greece's government sought to allay local anger at European Union plans to deploy a permanent team of foreign inspectors to monitor the country's finances, seen by many Greeks as a humiliating surrender of sovereignty.
Eurozone finance ministers demanded an "enhanced and permanent presence" of EU inspectors to ensure Greece sticks to punishing terms of a €130bn rescue package to avert bankruptcy.
Greek Finance Minister Evangelos Venizelos said the monitoring mechanisms would respect the country’s independence and said Greece had avoided a nightmare scenario by securing the rescue deal.
The second bailout for Greece will resolve its immediate financing needs, but seems unlikely to revive the nation's shattered economy.
After 13 hours of talks, eurozone officials said ministers had finalised measures to cut Greece's debt to 120.5% of gross domestic product by 2020.
That is a fraction above their original target of 120%, after negotiators for private bondholders accepted bigger losses to help plug the funding gap.
Agreement on the €130bn rescue package, subject to strict conditions, will help draw a line under months of uncertainty that has shaken the eurozone, and avert an imminent Greek bankruptcy.
Despite this Europe's main stock markets fell and the euro pulled lower, reversing early gains, as investor enthusiasm waned on the bailout agreement.
Head of the Eurogroup of finance ministers Jean Claude Juncker said: "We have reached a far-reaching agreement on Greece's new programme and private sector involvement that would lead to a significant debt reduction for Greece."
Mr Juncker said the deal would "pave the way towards an unprecedented amount of new official financing ... to secure Greece's future in the euro area".
A report prepared by experts from the European Union, European Central Bank and International Monetary Fund said Greece needed extra relief to cut its debts near to the official debt target given the ever-worsening state of its economy.
The deal will enable Greece to launch a bond swap with private investors to help reduce and restructure its vast debts, put it on a more stable financial footing and keep it inside the 17-country eurozone.
Around €100bn of debt will be written off as banks and insurers swap bonds they hold for longer-dated securities that pay a lower coupon, although it is not clear how many will take the deal.
The swap deal will be held on 12 March, according to the Greek finance ministry.
Private sector holders of Greek debt will take losses of 53.5% on the nominal value of their bonds.
They had earlier agreed to a 50% nominal writedown, which equated to around a 70% loss on the net present value of the debt.
"Given the balanced agreement reached with the creditor group ... and the fact that the package delivers debt sustainability for Greece we expect a high participation rate," Mr Juncker said.
The debt sustainability report delivered to ministers last week showed that without further measures Greek debt would only fall to 129% by 2020.
The IMF had said if the ratio was not cut to near 120%, it may not have been able to help finance the bailout, putting the whole scheme in jeopardy.
Greeks 'very happy' with deal
Greek Prime Minister Lucas Papademos has said he is "very happy" with the agreement.
Mr Papademos acknowledged that full delivery of the deal depends on Greece delivering on a string of conditions in "a timely and effective manner".
However, he maintained: "I'm convinced that the government after (an April general) election will also be committed to implement the programme fully ... because it is in the interests of the Greek people."
European Commission Vice President Olli Rehn said the agreement would enable growth in Greece.
Mr Rehn also said he hoped Greece could now make progress in the way Ireland had.
IMF Managing Director Christine Lagarde said the agreement would allow Greece to move forward under scrutiny.
Officials in Brussels this morning said that growth will not return to Greece until after 2014.
They said that unemployment will remain high, between 16% and 17%, until well into the second half of the decade.
Officials also admitted that the scale of the country's economic contraction, 17% in all since 2009, had meant deficit reduction targets were consistently not being met during the first rescue programme.
However, they stressed that Greece had managed to reduce its budget deficit by half, and that much of the second programme would focus on competitiveness, opening up closed professions and boosting exports and investment.
Greek deal unique to Greece
Speaking on RTÉ's Morning Ireland, Minister of State at the Department of Finance Brian Hayes described the deal as very significant.
Mr Hayes, who attended the talks, said it would bring stability to the eurozone as a whole.
Later, Mr Hayes said the key task was bringing stability to Greece and this had been achieved, which was a good day’s work.
When asked if flexibility shown by the European Central Bank on Greek bonds could benefit Ireland, he said that the deal was about putting Greece on a sustainable path.
Mr Hayes confirmed that the Government is in discussions with the ECB on the promissory notes and that Ireland is not seeking a deal from the ECB to forgo profits on government bonds, as was agreed with Greece.
"The Greek deal is unique to Greece," the minister said.
Fianna Fáil leader Micheál Martin welcomed the deal, saying it brings more certainty, and repeated that there is now a need for a fairer deal on bank debt to be offered to Ireland.
