Eurozone finance ministers Wednesday welcomed progress made by Greece in implementing strict austerity programs in return for a euro130 billion ($170 billion) bailout. However, the group wants to put the country under even tighter surveillance before the rescue funds are released.
Following a 3 1/2 hour conference call between the finance chiefs of the 17 countries that use the euro, the ministers welcomed the strong assurances that the country had found a further euro325 million in cuts on top of austerity measures already agreed. They also welcomed news that the leaders of the main Greek political parties will implement promised cuts and reforms even after elections expected for April.
Market reaction: Stocks in Europe lost gains ahead of the meeting on worries over delays to the bailout deal. In Athens, the main share index was down 5 percent.
What's next: European finance ministers will discuss the Greek bailout and a bond swap agreement with Greece's private creditors at a meeting Monday.
Q: Why is this budget-cutting so important?
A: Without it, the country would not be eligible for a euro130 billion ($170 billion) bailout from other countries in Europe and the International Monetary Fund. Greece needs the money ahead of a euro14.5 billion ($19.2 billion) bond deadline on March 20 and to strike a vital debt-relief deal with bond investors.
Q: And if Greece were to miss this March 20 bond payment, then what?
A: A disorderly Greek default would potentially spread the crisis to other eurozone countries, by making investors even more leery of lending to them. And analysts fear it could set off a chain reaction similar to the financial meltdown that occurred in the fall of 2008 and triggered the Great Recession.
Q: Didn't Greece already get a massive bailout? Why wasn't that enough?
A. Greece has been surviving since May 2010 on a euro110 billion ($146 billion) bailout. But the terms of that bailout were harsh, requiring higher taxes and deep cuts in public spending. Those actions pushed Greece deeper into recession, and the country's failure to control spending caused its debt burden to rise.
Q: How badly is Greece doing?
A: Its economy shrank at an annual rate of 5 percent in the third quarter of 2011, the most recent quarter for which data are available. Earlier in the year, it was shrinking at an 8.3 percent rate— about as fast as the U.S. economy was shrinking during the worst of the Great Recession. Thousands of shops and small businesses, vital to the Greek economy, have gone bankrupt. Unemployment stands at 20.9 per cent.
Q: What are the terms of the debt-relief deal Greece is negotiating?
A: Banks, hedge funds, pension funds and other private investors who own euro206 billion ($273 billion) in Greek government bonds would exchange them for a payment of euro30 billion ($40 billion), plus euro70 billion ($93 billion) in new bonds. The payment will come from the euro130 billion ($172 billion) package from Europe and the IMF. The new bonds would have a lower average interest rate and a longer term of maturity.
Q. How will the rest of the euro130 billion ($172 billion) bailout be used?
A. Greece will invest roughly euro40 billion ($53 billion) in the country's banks, who would be at risk of collapse from the losses they take on Greek government bonds as part of the debt-relief deal. The remaining euro60 billion ($79.5 billion) will be used for financing the country's deficit.
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