What went wrong in Greece?
Greece’s economic reforms that led to it abandoning the drachma in favour of the euro in 2002 made it easier for the country to borrow money.
Greece went on a debt-funded spending spree, including high-profile projects such as the 2004 Athens Olympics, which went well over budget.
It was hit by the downturn, which meant it had to spend more on benefits and received less in taxes. There were also doubts about the accuracy of its economic statistics.
Greece’s economic problems meant lenders started charging higher interest rates to lend it money and widespread tax evasion also hit the government’s coffers.
There have been demonstrations against the government’s austerity measures to deal with its 300bn euro (£267bn) debt, such as cuts to public sector pay.
Now the government has announced that it needs to access the 30bn euros (£26bn) in emergency loans it has been offered by other EU countries.
**The value of shares has fallen on Asian stock markets amid further signs that the Greek debt crisis is intensifying.**Taking their cue from New York, the market in Japan fell almost 3% in early trading, while markets opened nearly 2% down in Australia and South Korea.
Shares began tumbling after the credit rating agency Standard and Poor’s downgraded Greek debt to “junk”.
The head of the International Monetary Fund will later urge German MPs to agree to a rescue of the Greek economy.
Dominique Strauss-Kahn will travel to Berlin along with the president of the European Central Bank, Jean-Claude Trichet, to persuade politicians that giving Greece billions of euros in aid is a “last resort”.
‘No restructure’
During a visit to Tokyo on Wednesday, European Council President Herman Van Rompuy announced a meeting of eurozone heads of state and government would be held on 10 May to discuss the Greek crisis.
He insisted negotiations on the aid were “well on track” and that there was “no question about restructuring” Greek debt.
Meanwhile, Britain’s Financial Times newspaper reports that the International Monetary Fund is considering raising its contribution to the bail-out by 10bn euros to 25bn euros.
Correspondents say the idea of a bailout is unpopular with the German public, which doubts it will save Greece from going bankrupt.
The Greek government has acknowledged it can no longer raise money on international markets.
It has urged the European Union and the IMF to release the bail-out package so it can make debt repayments due next month.
In Greece itself, demonstrators called for the country to default on its debts, so that foreign banks would pay the price for the crisis.
On Tuesday, share prices in New York, London, Frankfurt and Paris fell more than 2% after Greece became the first eurozone member to have its debt downgraded to junk.
When ratings agencies demote a country’s credit rating - it means they think it is now a riskier place to invest.
If it reaches junk status, a country loses its investment grade status. Some financial institutions have rules prohibiting them from investing in “junk” bonds.
Portugal’s credit was also cut two-notches to A-minus, further fuelling concern that the crisis was about to spread across Europe, forcing a number of countries to default on their debts, hurting the euro, and sparking a new crisis.
‘Down to the wire’
The worries about Europe’s debt problems spread to Asia on Wednesday, with all the region’s main stock indices down in early trading.
“We have the makings of a market crisis here,” Neil Mackinnon, a global macro strategist at VTB Capital, told the Associated Press new agency.
Correspondents say the markets are not convinced that governments in the eurozone will have the political will to reach an agreement on a bail-out for Greece, especially in Germany.
On Tuesday, German Chancellor Angela Merkel reiterated that Greece had to first outline further steps to reduce its budget deficit before her government would endorse the release of funds from a 45bn-euro ($60bn; £39bn) rescue package.
“You have to economise, you have to become fair, you have to be honest; if not, nobody can help you,” she warned the Greek people.
Greek Finance Minister George Papaconstantinou said the downgrade of its debt did “not reflect the real state of our economy, nor the fiscal situation, nor the ongoing negotiations which have the very realistic prospects that they will be completed successfully in the next few days”.
“One wishes that Europe had acted a little differently. Three and four months ago we were saying that the mechanism must be ready and it must be detailed, that the markets must know what exactly is going. Unfortunately, for a series of political reasons, we are down to the wire,” he added.This article is from the BBC News website. © British Broadcasting Corporation, The BBC is not responsible for the content of external internet sites.
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