Questions & Ansers about the Greek Crisis

What is the EU expected to announce today?

Euro zone prime ministers will announce at a summit in Brussels today that they will provide whatever support is required to prevent the Greek government defaulting on its debts and effectively going bankrupt.

How bad is the situation?

Greece has a budget deficit equivalent to 12.7 per cent of its gross domestic product. Under an austerity plan approved by the European Commission it will introduce radical cuts in order to bring this under 3 per cent by 2012.

Why doesn’t Greece turn to the International Monetary Fund (IMF) like EU members Hungary, Romania and Latvia did last year?

It’s felt in Brussels and Frankfurt that if Greece had to turn to the IMF for a bailout it would be an admission that the euro zone can’t handle its own problems.

How much does Greece need?

The Greek authorities estimate they will need to borrow €53 billion in 2010 in order to refinance the current debt pile of about €300 billion and to keep the lights on. Last month Greece raised €8 billion selling five-year bonds, but the lenders exacted a hefty premium for the credit.

Is that the full extent of Greece’s problems?

No one is quite sure. It has emerged that economic data provided by the Greek government to Brussels has been wildly inaccurate. In fact the current crisis began with the election of George Papandreou as prime minister and his admission that the budget deficit was much worse than previously admitted.

How did Greece end up in this mess?

When it joined the euro in 2001 it got access to the international bond markets who were happy to fund a single currency member. But these investors are now questioning if they got a true picture of Greece’s finances. Normally a country in Greece’s situation would devalue its currency but as a euro member that’s not an option.

What will happen next?

Again, nobody is quite sure. In the 11-year history of the single currency this is the first time a member has had to be rescued. As a result there is no documented procedure for a bailout.

The EU treaty allows for the EU Council to decide upon the measures appropriate to the economic situation.