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Greek bailout Q&A

Greece has stalled on meeting terms for a €130bn rescue package, we look at what the problem is and what can be done

Why have talks stalled?

The Greek government has failed to agree on a package of spending cuts and tax rises that representatives of the EU, IMF and the European Central Bank (ECB), known as the troika, insist must go ahead before they sanction €130bn of rescue funds.

Why does Greece need the money?

Greece has borrowed around €350bn from private sources to keep its public finances afloat. Some is from its own banks, some from Greek savers, but the bulk is from overseas banks and the ECB. In a few weeks’ time loans worth €14.5bn face renewal. The troika is prepared to lend the cash if a deal is in place.

Who in Athens is blocking a deal?

Greece is under a coalition of one social democratic party (Pasok) and two rightwing parties (New Democracy and Laos) led by a team of technocrats, with Lucas Papademos as prime minister and chief technocrat. The two rightwing parties are credited with preventing further cuts in wages.

Is the troika giving ground?

There is some pressure from the IMF to ease up on calls for spending cuts and to emphasise more long-term structural reforms. However, Brussels, with the support of the ECB and Germans, is sticking to its hard line.

And private banks?

Parallel talks with private creditors have centred on the bulk of outstanding loans. A group representing banks with €205bn of Greek debt is prepared to write off 70% of their value, but only if the troika package of cuts is in place.

What if Greece goes bust?

Papademos is examining the fallout from a default. It would wipe out its debts, but almost certainly lead to its ejection from the euro. Advisers in Brussels have warned that such a nuclear explosion in Athens cannot be contained. They say contagion will spread to Portugal, Spain and Italy.

Why would other states be affected?

If Greece is cut loose then US, Chinese and EU banks will withdraw their funds immediately from other vulnerable countries The solidarity expected of the eurozone will be undermined. Portugal is running out of money faster than expected and will probably need a bailout too. If Greece goes under, it could precipitate a run on Portuguese financial institutions. Italy and Spain are vulnerable, as is Ireland. © 2012 Guardian News and Media Limited or its affiliated companies. All rights reserved. | Use of this content is subject to our Terms & Conditions | More Feeds