The eurozone crisis – rescuing Greece - Commons Library Standard Note

Greece’s long-standing public debt problem became a crisis at the start of 2010 and has since escalated to a point where it threatens the survival of the euro. In the face of rising government borrowing costs, the country first requested international assistance on 23 April 2010. The €110bn eurozone-IMF loans agreement it received came with strict conditions on economic policy and reform. A worsening recession and rising public opposition to further austerity meant the Greek government struggled to meet the conditions of the agreement. Meanwhile, the prospects of it returning to borrow on the open market by 2012, as originally envisaged, became increasingly hopeless.

Drawn-out discussions on a second ‘bail-out’ for Greece began at an official level on 22 July 2011, and by 21 February 2012 the pieces of a more complicated arrangement had almost fallen into place. As well as the traditional ‘loans and austerity’, the second bail-out involves Greece’s private sector creditors taking losses on their holdings of Greek sovereign debt: this follows from a belated recognition that no amount of austerity and loans on their own could put Greece’s debt burden on a sustainable footing.

For now, the second agreement avoids a disorderly default that would otherwise have occurred on 21 March as €14.5bn in Greek bonds fell due. But the long-term success of the package is highly dependent on the capacity of Greek politicians to implement, and the public to tolerate, further reform. Greece has already experienced an exceptionally severe recession and cuts in public sector spending (see table below), and if its economy does not quickly see a return to growth under the new programme, the same pressures that caused the failure of the first agreement could re-emerge.

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