Greece's deficit

Over the past decade, Greece took full advantage of a strong euro and rock-bottom interest rates to fuel a debt binge by the country's consumers and its government. When the global economy crumpled, the stage was set for a financial crisis that soon drew in much of Europe and ultimately the International Monetary Fund. While a deal was reached to support new borrowing by the Greek government, the episode raised new questions about the fate of the euro zone.
The trigger for the crisis was Greece's admission in late 2009 that its government deficit would be 12.7 percent of its gross domestic product, not the 3.7 percent the previous government had forecast earlier. Investors were stunned. In early 2010, the fears grew into a full-fledged financial panic, as investors questioned whether Greece's Socialist government could push through the tough measures it has promised to reduce its budget deficit. As the fear spread to Portugal and Spain, leaders of Europe's more affluent countries like Germany and France, worried about lasting damage to the euro, stepped in with a pledge to defend the currency but initially stopped short of an outright bailout for Greece, which had built up $400 billion in debt.
As part of an austerity plan, the Greek government in early March 2010 approved a round of tax increases and pay cuts for public employees. The steps were met with a series of angry but peaceful protests by civil servants and others that seemed to suggest a limit to the extent to which the country could cut its way out of the crisis. But the cuts also gave some reassurance to investors and to France and Germany that Greece was moving to get its house in order.
After months of fractious debate, in late March the 16 countries that use the euro agreed on a financial safety net for Greece, combining bilateral loans from those European nations with cash from the International Monetary Fund. The proposal, brokered by France and Germany and then approved by European leaders, would take effect if the Greek government were unable to borrow in the commercial markets. Under the deal, loans would be provided at market rates and offered only with the agreement of all the nations that use the euro currency.
The vague assurances were not enough by themselves to reassure the bond markets, who steadily raised the interest rate on money they were willing to lend Greece. On April 11, European leaders announced that they would make $30 billion available to Athens, along with $10 billion from the I.M.F., in the form of loans with an interest rate of 5 percent -- lower than the 7.5 percent Greece had been paying, but high enough that German officials could insist that it did not constitute a subsidy or bailout. Two days later, Greece sold $1.6 billion in new bonds, in a sale that was heavily oversubscribed.

New York Times
http://topics.nytimes.com/top/news/international/countriesandterritories/greece/index.html