Now that the Greek Parliament has approved two austerity bills, the way has been cleared for new loans that will allow the country to meet its debt obligations, avoiding the first default by a eurozone nation.

Greece owes the rest of the world more than $500 billion US. Its economy has contracted by 4.5 per cent over the past year, leaving the government with less cash than it needs to continue running the country and meet its debt obligations.

While the loans mean Greece can pay its bills, the $40 billion in tax increases and spending cuts outlined in the austerity measures will likely curtail economic growth, again putting a damper on government revenues.

While Greece may be off the hook for now, it may just be putting off the inevitable, according to Avery Shenfeld, senior economist for CIBC World Markets.

"Greece simply has borrowed so much that eventually they are not going to be able to pay — not without ruining their economy in the process," Shenfeld told CBC News.

A Greek default now would deal a devastating blow to the country's banks. They hold almost $100 billion of the country's total debt — and would likely collapse as depositors tried to get hold of their money.

'European banks are in pretty ugly shape'—Avery Shenfeld, CIBC World Markets

German and French banks would take the next biggest hits.

Germany holds more Greek debt than any other country and two major French banks have controlling interest in Greek banks.

Shenfeld notes that European banks in general are currently in "pretty ugly shape." They haven't really repaired their financial position since the recession.

Canadian and American banks do not have extensive holdings in Greek debt, but they have extensive links to banks in other countries that are heavily exposed to Greece.

The chart below, produced by the Bank of Canada, shows that of the more than $1.5 trillion US in foreign claims on Greek, Irish, Portuguese and Spanish debt, Canada is in to the tune of $8 billion US.

Not so bad. However, Germany, France, the U.K. and the U.S. hold far greater shares of that debt and Canadian banks are much more heavily exposed to those countries.

Should foreign banks fail, Canadian banks would feel the pinch.

"The major effect [of a Greek default] is probably one of confidence," says Grant Amyot, a specialist in European politics and economic policy at Queen's University.

"In some ways, these predictions that a Greek default will undermine confidence are self-fulfilling. As analysts and rating agencies have been telling us for months that a Greek default will undermine confidence, then when it happens, investors will panic."

'Predictions that a Greek default will undermine confidence are self-fulfilling.'—Grant Amyot, Queen's University

And that's why Shenfeld says a default won't happen. At least not in the short term.

"The idea here is no politician wants to face a problem right away.

"There is some sense in this because if Greece were to default in two or three years from now, or have to negotiate some debt relief, perhaps the rest of the eurozone economy will be in better shape to take some losses on their Greek debt, and it wouldn't be so cataclysmic for the European economy as a whole."

While the International Monetary Fund has insisted that Greece creditors will have to be repaid in full, Shenfeld suggests that the long-term solution will probably involve some form of debt forgiveness.

"What Greece will need is some debt relief, just like we did for some Third World economies where we said, 'OK, you don't have to pay the whole thing, let's talk,'" Shenfeld said.

It's what happened in the 1980s and 1990s when financial crises rocked Latin America and Africa.