...In 2009, (click here) Greece announced its budget deficit would be 12.9 percent of its gross domestic product. That's more than four times the EU's 3 percent limit.
Rating agencies Fitch, Moody's and Standard & Poor's lowered Greece's credit ratings. That scared off investors. It also drove up the cost of future loans. Greece didn’t have a good chance of finding the funds to repay its debt.
In 2010, Greece announced a plan to lower its deficit to 3 percent of GDP in two years.
Greece attempted to reassure the EU lenders it was fiscally responsible. Just four months later, Greece instead warned it might default.
The EU and the International Monetary Fund provided 240 billion euros in emergency funds in return for austerity measures. The EU had no choice but to stand behind its member by funding a bailout. Otherwise, it would face the consequences of Greece either leaving the eurozone or defaulting.
Austerity measures required Greece to increase the VAT tax and the corporate tax rate. It must close tax loopholes and reduce evasion. It should reduce incentives for early retirement. It has to raise worker contributions to the pension system. A significant change is the privatization of many Greek businesses, including electricity transmission. That reduces the power of socialist parties and unions....
