How did we get to this point?

Former European Central Bank vice-president Lucas Papademos has been named as Greece's interim prime minister, following days of negotiations.

He will head an interim government being formed to make sure the debt-strapped country gets its latest bailout payment.

His administration will also have to approve a new 130bn-euro ($177bn; £111bn) international rescue package from the European Commission, the European Central Bank (ECB) and the International Monetary Fund (IMF).

The three-point plan includes expanding the single currency's bailout fund to 1tn euros, banks being forced to raise more capital to protect themselves against losses resulting from any future defaults, and banks accepting a loss of 50% on money they have lent Greece.

Greece and its huge debts have weighed on the eurozone for more than a year.

The country has been bailed out twice - and investors still fear a default.

Why is Greece in trouble?

Greece has been living beyond its means since even before it joined the euro, and its rising level of debt has placed a huge strain on the country's economy.

The Greek government borrowed heavily and went on something of a spending spree after it adopted the euro.

Public spending soared and public sector wages practically doubled in the past decade. It has more than 340bn euros of debt - for a country of 11 million people, about 31,000 euros per person.

However, whilst money has flowed out of the government's coffers, its income has been hit by widespread tax evasion.

When the global financial downturn hit, Greece was ill-prepared to cope.

It was given 110bn euros of bailout loans in May 2010 to help it get through the crisis - and then in July 2011, it was earmarked to receive another 109bn euros.

But that still was not considered enough. Another summit was called in October in Brussels to solve the crisis once and for all.

How did we get to this point?

The aim of the original Greece bailout was to contain the crisis.

That did not happen. Both Portugal and the Irish Republic needed a bailout too because of their own debts.

Then Greece needed a second bailout, worth 109bn euros.

In July this year, eurozone leaders proposed a plan that would see private lenders to Greece writing off about 20% of the money they originally lent.

But bond yields continued to rise on Spanish and Italian debt - leading to fears that their huge economies will need to be bailed out too.

The failure of Franco-Belgian lender Dexia also added to woes - French and German banks are large holders of Greek debt.

The eurozone rescue fund - the European Financial Stability Facility - was 440bn euros, nowhere near big enough to deal with that scenario.

And so, in October, the eurozone agreed to expand the EFSF to 1tn euros and got banks to agree to a 50% "haircut" on their Greek holdings.

But then Greece's Prime Minister George Papandreou shocked European leaders by calling a referendum on the bailout package.

That led the leaders of Germany and France, as well as the IMF, to declare that Athens would not receive its next tranche of emergency aid until the referendum had passed.

Moreover, the question of Greece leaving the euro was raised for the first time by angry eurozone leaders.

That forced Mr Papandreou to back down over the referendum, and he has since made way for a new cross-party unity government that is expected finally to pass the latest bailout deal.

Date: 2015-12-17; view: 506