Greek lawmakers on Monday demanded by bailout creditors to save the debt-crippled nation from bankruptcy, after and other cities left stores looted and burned and more than 120 people hurt, according to media reports.
The historic vote paves the way for Greece's European partners and the International Monetary Fund to release $170 billion (euro130 billion) in new rescue loans, without which Greece would default on its mountain of debt next month and likely leave the eurozone.
Greece's sovereign debt crisis has been regularly roiling global markets for almost two years now. Here's a primer on the origins and ramifications of the Greek debt drama, where we stand now -- and what's likely to happen next.
Q: How did Greece become such a big problem?
A: The Greek government spent beyond its means for years. It borrowed much more than it collected in tax revenue and much more than EU rules said it should have. When the financial crisis hit, it became too expensive for the nation to borrow money to pay off its debt. This revealed the true size of the debt problem, as well as the fact that Athens had been lying to the EU about its financial status. In fact, it now appears Greece lied about its finances in order to meet the qualifications for EU membership.
Q: How much does Greece owe?
A: The nation currently owes 133 percent of its $305.6 billion GDP. Because Greece's economy is shrinking, that percentage will continue to increase to at least 140 percent next year. Even if the EU bailout plan works as hoped, it will only cut the debt to 120 percent by 2020.
Q: Why does this matter to the rest of the world?
A: If Greece goes into a formal bankruptcy, the banks and nations that lent it money would be forced to admit that they will not get their money back. If that happens, the banks and nations that lent money to Greece will likely call in their loans. The institutions which lent to Greece likely won't have enough money to pay off their own loans, causing them to go into bankruptcy themselves. There are very real concerns that this could cause a cascading failure which could cripple the world financial system and global economy. It would be similar to the financial crisis ignited by the failure of Wall Street investment bank Lehman Brothers in 2008 -- but on an even greater scale.
Q: Why isn't Greece already in bankruptcy?
A: A group known as The Troika -- the IMF, European Central Bank and EU -- has been giving Greece funds to keep current with its debt payments. In return, they have been demanding that the Greek government institute severe budget cuts -- the so-called austerity measures -- in order to get spending under control.
Q: What did the Greek Parliament do Monday?
A: It voted to pass a bill to cut the minimum wage, fire a fifth of government workers and slash entitlement spending. The Troika demanded those cuts before it would give Greece the next bailout payment of $171 billion.
Q: Is anything else being done to address the debt problem?
A: Greece is negotiating with private investors to get them to accept a smaller amount of money on their loans. Recent reports say lenders will have to accept a "haircut" of 70 percent. That is, they would get 30 cents for each dollar they were originally supposed to get back. Unfortunately, Greece can't even afford that smaller sum. In fact, even if its debts were forgiven entirely, the nation would still be bankrupt.
Q: What will happen to Greece if it defaults on its debt?
A: Prime Minister Lucas Papademos has accurately said, "A bankruptcy would lead to uncontrollable economic chaos and social explosion." A sovereign default would cause Greek citizens to lose their savings, leave the government unable to pay salaries and pensions, and bring international trade with Greece to a standstill, hitting the nation with shortages of food, fuel and medicine.
Q: So why are Greek citizens rioting at the prospect of the budget cuts that would prevent this?
A: Because so many of them are already experiencing economic chaos and social upheaval. The nation's unemployment rate is now more than 20 percent. Homelessness, previously little known in Greece, is now rampant. In a nation of 11 million people, the Greek Orthodox Church reports that it is providing food to 250,000 every day. More than 10,000 people are currently living on the streets of Athens, during one of the coldest winters in memory. Even before the crisis hit, Greece was a poor nation, with a fifth of its people living under the poverty line. Now that number is up to a third.
Q: Would the budget cuts demanded by the Troika actually do any good?
A: It is highly, highly unlikely. For one thing, there are serious doubts as to whether the cuts would actually go into effect. The Greek government has been promising budget cuts for some time and not delivering. For another, it has been proven over and over again that budget cuts under these circumstances do not work. All they do is cause a nation's economy to shrink even faster, thus exacerbating the problem.
Q: So what is the solution?
A: That is an excellent question.
The Associated Press contributed to this report.