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ATHENS, Greece -- Greece is struggling to get a deal with
its financial rescue creditors to get more loans. Without one, it could
default on its debts, which could be the first step in a chain reaction
that sees the country fall out of the euro currency union.
Here is a broad look at the key issues in the crisis:
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CURRENT ISSUE
The
Greeks must make a 1.6 billion-euro loan payment to the International
Monetary Fund this month. They don't have the money. They're negotiating
with the IMF and the other eurozone countries to get 7.2 billion euros
in loans - the last installment in a bailout package expiring this
month. Without that money, Greece will likely default on the IMF loan.
Even bigger payments come due later this summer. Its creditors are
demanding that Greece slash public pensions and reform its tax system
before releasing the money.
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NO BOND MARKET
Greece
needs loans because it cannot borrow on bond markets at affordable
rates, as other countries do to finance their spending. Greece's bond
rates - effectively what international investors demand in return for
lending the country money - spiked higher in late 2009 when Greece
revealed that its public deficit was far higher than expected.
---
DEAL HURDLES
Greece
is having trouble reaching a deal with creditors because a new
government, elected in January, says it will not abide by the terms that
previous governments have accepted for years. Those terms include cuts
to pensions, wages, public sector jobs as well as higher taxes.
Such
budget `austerity' measures aim to reduce the budget deficit but have
also hurt the economy by increasing unemployment, making Greeks poorer
and reducing the amount of disposable income Greeks have.
The
current government, led by the radical left Syriza party, says it will
not make more such measures. Creditors are insisting it should if it
wants more loans, because they are worried that if Greece doesn't get
its public finances back in shape, they'll never get their money back.
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DEFAULT DANGER
The
risks of default are that it could unsettle confidence among Greeks and
cause bank runs. The banks are currently supported with emergency
credit allowed by the European Central Bank. If Greece can't pay its
creditors, the government debt lenders use as collateral for their ECB
loans would become worthless and the ECB could withdraw its support.
Greece
would have to then support the banks itself - but it doesn't have the
money to do so. It would theoretically then have to start printing its
own money to get cash flowing through the economy again. Doing so, it
would effectively be leaving the euro.
---
LONGER-TERM ISSUES
Greece's
problems will not be solved forever with those 7.2 billion euros. The
money would only cover its debt repayments for a few months. So Greece
and its creditors need to find a longer-term solution.
Because
most of Greece's debts consist of bailout loans, the country would be
helped if its creditors agreed to make the terms of those loans easier -
either by reducing the interest Greece has to pay on them or extending
their repayment date.
Creditors had promised
last year to consider this. But they say a decision can be taken only
after Greece has fulfilled the reforms demanded in exchange for the 7.2
billion euros in loans. Greece wants such a decision on lightening its
debt terms now.
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