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Q&A Greek bailout: anatomy of a deal

Eurozone members are expected to lend €130bn, but will mean sighs of relief or more sleepless nights for Greece and beyond?

How are the European leaders helping Greece?

The 17 members of the euro currency bloc were expected to put a lending facility of €130bn (£108bn) on the table, in addition to the €110bn lent over the last two years.

These loans will replace ones previously offered by foreign banks, which have refused to lend Greece more money. Non-euro nations in the broader 27-strong European Union, including the UK and Sweden, have turned their back on Greece.

What about a helping hand from the private sector?

Banks that lent Greece funds over many years have accumulated €205bn of outstanding loans, packaged as bonds of varying maturities. In total, the Greek state has €350bn of debts. A major grouping of banks, led by Deutsche Bank, have agreed to swap their holdings for new 30-year bonds and accept a 70% loss in the process. This will bring down Greece’s debt-to-GDP ratio from 160% to a still scarily high 130%.

When does the money need to be in place?

Athens must redeem €14.5bn of loans on 20 March. The treasury is empty, so it desperately needs the bailout funds. Without them the country would default, leaving the foreign banks with a €14bn loss.

Greece would almost certainly be forced to leave the euro, although there is currently no mechanism in place for a member of the single currency to quit.

Will the people of Greece be able to breathe a sigh of relief when the second bailout is agreed?

A deal depends on the Athens parliament passing a series of bills that bring forward cuts in spending, designed to bring the country’s debts down further, and labour market reforms that are supposed to spur growth.

While it is possible that MPs will not back the measures, it seems unlikely as the two largest political parties – the centre-right New Democracy and centre-left Pasok – are in favour.

Will the deal unravel?

There is every prospect that all the maths that makes the deal work for Brussels is deeply flawed. Greece is expected to suffer a fourth year of recession this year. Without growth, its debts will start to get bigger again. Labour market reforms, which will attack postwar protection for trades and professions from taxi drivers to lawyers, will be resisted at every turn.

Also, most of Greece’s export markets – at least the ones that provided healthy profits before the economic crash – are Eastern European or Balkan countries that are now suffering themselves.

What about elections in April?

The prospect of elections gives officials in Brussels sleepless nights. There is a chance the populist Laos party will win a surge of support and undermine the consensus among the political elite. Pasok and New Democracy believe the demands made by Brussels are a price worth paying for staying inside the euro. A complicated electoral system awards extra seats to the largest party, a quirk that propelled New Democracy to a big win in 2007 and Pasok similarly in 2009. A big upset could be on the cards in 2012.

Could there be a wider backlash?

Riots on the street of the capital are nothing new. But a deal that involves a raft of benefit cuts, public sector redundancies and pension cuts could spark widespread protests when they are passed by MPs, or when they take effect later in the year. The government of Lucas Papademos, the former central banker drafted in as interim prime minister, has agreed €325m in extra budget cuts after slashing the national minimum wage by 22% and many pensions by 12%. © 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