European finance ministers finally approved a second bailout for Greece—one that would yoke Greece firmly into its downward economic spiral.

The first bailout, approved in 2010, forced the Greek government to impose austerity measures during a global economic recession. Far from helping Greece out of its debt trap, the first bailout appears to have had no effect whatsoever on Greece’s mounting public debt. In addition, current economic indicators show that the austerity measures contributed to a nearly 7% contraction in the Greek economy in 2011, which is more than twice the 2.6% contraction the International Monetary Fund (IMF) predicted for Greece in 2011.

Now comes the second bailout with even greater restrictions. In exchange for $172 billion that will be paid directly to Greece’s debtors (mostly European banks), Greece will have to impose steeper wage cuts, close various public ministries, and raise taxes, all during a steep recession. The goal is to reduce Greece’s debt from 160% of gross domestic product down to 120% of GDP by 2020, which will still be an unsustainable level.

A report circulated among European finance ministers was leaked to the London-based Financial Times newspaper last Monday. The report, a debt sustainability analysis issued by The Troika (the European Commission, the European Central Bank, and the IMF) estimated that the austerity measures imposed on Greece with this new bailout package will completely negate the effects of the $172 billion. In other words, after three years of pain, Greece’s debt will still be at 160% of GDP, and could become even larger. Secondly, by forcing private investors in Greek debt to take a loss of about 70%, it will also hamper Greece’s ability to borrow money on the international markets in the future.

At the end of the day, one has to ask, what is the difference between this bailout and bankruptcy? For Greece, there is no difference. If they defaulted on their loans, they would be shut out of international debt markets for decades, which is no different than this bailout package, which imposes a partial default on bonds held by private investors. In that case, if Greece couldn’t borrow to pay for its government operations, then the government would have to impose its own austerity measures.

The main difference, of course, is in terms of sovereignty. In the event of a Greek bankruptcy, Greece would pull out of the European Union. It would be in control of its own government and political course. Greek politicians elected by the Greek populace would make decisions about government cuts and tax collections.

But by submitting to the European finance ministers, Greece has abdicated its ability to make its own decisions; the cuts are being selected by outsiders. In accepting that $172 billion, Greece must also accept a permanent team of European monitors who will oversee the implementation of the austerity measures.

But there’s a bigger difference—one that’s seldom mentioned by the mainstream press here in the U.S. or in the European Union: the role of the banks. Of course, all of Greece’s “bailout” money has been earmarked to pay its debtors, most of whom are European banks. There’s been no discussion of whether those banks deserve to be paid for making risky investments.

Yes, sovereign debt is usually assumed to be very safe, but there are levels of risk in every type of investment. U.S. or German government bonds are assumed to be much safer than, say, the government bonds of Nigeria with its well-known corruption scandals, or the bonds of a war-torn country like Iraq or Afghanistan. Individual investors understand this concept very well. It’s disingenuous for European banks to argue that they don’t, and that they could never have foreseen what’s happened in Iceland, Ireland, and Greece.

Greece, although it’s a European country, has had well-known and well-documented problems with government corruption. Surely major European banks had access to the same statistics that individual investors did about Greece’s bloated public sector. Banks who purchased billions of dollars of Greek bonds over the past decade are asking to be rewarded for either not doing their due diligence or for ignoring evidence that they were taking huge risks (in their search for huge profits).

This bailout for European banks, disguised as a bailout for Greece, is meant to prevent a deeper financial crisis for Europe: the specter of its biggest banks falling like dominoes. Unfortunately, Greece’s sovereignty, it’s centuries-old democratic traditions, are being sacrificed to save a de-regulated banking system that deserves to fail…or at the very least to be restructured and reregulated from the bottom up.

Unfortunately for Greece, it is caught in the middle. An outright bankruptcy would allow Greece to set its own course, to make its own decisions—however painful—and to eventually bring its economy out of the doldrums. Without a huge debt burden hanging over it, the government’s austerity measures might have meaning and purpose. But the current situation is too much like serfdom for the Greek population to accept.