What The Greek Bailout Does (And Doesn't Do)

Weekend bailout news: European nations offered to lend Greece $40 billion at 5% interest for three years.

The news is significant because European leaders have until now been somewhat vague about what they would do to bail out Greece. But the promise still leaves Greece with some big problems.

The money won't be enough to cover Greece's borrowing needs for the year. The country needs to raise about $48 billion, the FT says; the Economist says the country may need to raise more than $60 billion this year.

The IMF would step in to lend the country some $20 billion, if needed, at rates that could be below 3%, the WSJ says. The IMF typically lends to countries in the developing world, and until a few months ago the idea of a Euro-zone country getting an IMF bailout seemed wildly unlikely.

The short-term bailout money is just the first step, though. To get itself out of the fiscal hole, Greece has to both cut government spending to lower deficits, and get its economy growing again. It's very tough to do both of those things at the same time.

"The real issue will be whether Greece can regenerate growth while cutting the fiscal deficit," a Goldman economist said in a note cited by Bloomberg News. "Without growth, the debt is only sustainable if someone will finance them at much less than 5 percent" for at least a decade. "The exact interest rate charged on the bailout package is a bit of a red herring."

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