Understanding Greece's Austerity Deal

The Associated Press

Greece's political leaders on Thursday agreed to steep government cutbacks and economic reforms to qualify for a €130 billion ($170 billion) bailout from other countries in Europe and around the world.

Here are some questions and answers about the agreement:

Q: What are the main points of the deal?

Greece has agreed to a range of austerity measures designed to bring its deficit under control. They include a 22 percent cut in the monthly minimum wage to €586 ($780), layoffs for 15,000 of civil servants and an end to dozens of job guarantee provisions.

Q: Why is this budget cutting so important?

A: Without it, the country would not be eligible for a €130 billion ($170 billion) bailout from other countries in Europe and the International Monetary Fund. Greece needs the money ahead of a €14.5 billion bond deadline on March 20 and strike a vital debt-relief deal with bond investors.

Q: And if Greece were to miss this March 20 bond payment, then what?

A: A Greek default would potentially spread the crisis to other eurozone countries, by making investors even more leery of lending to them. And analysts fear it could set off a chain reaction similar to the financial meltdown that occurred in the fall of 2008 and triggered the Great Recession.

Q: Didn't Greece already get a massive bailout? Why wasn't that enough?

A. Greece has been surviving since May 2010 on a €110 billion bailout. But the terms of that bailout were harsh, requiring higher taxes and deep cuts in public spending. Those actions pushed Greece deeper into recession, and the country's failure to control spending caused its debt burden to rise.

Q: How badly is Greece doing?

Its economy shrank at an annual rate of 5 percent in the third quarter of 2011, the most recent quarter for which data are available. Earlier in the year, it was shrinking at an 8.3 percent rate— about as fast as the U.S. economy was shrinking during the worst of the Great Recession. Thousands of shops and small businesses, vital to the Greek economy, have gone bankrupt. Unemployment stands at 20.9 per cent. And protesters have taken to the streets of Athens regularly to denounce the government and its austerity measures.