Greece and the EU face off over financial assistance

RELATED NEWS EU faces high-stakes ultimatum on aid for Greece Greece may seek IMF help April 2-4: Dow Jones EU reassures Greece of aid, if needed Euro zone Greek aid as clear as mud

The European Union and Greece have been discussing how to resolve Athens' debt crisis for several months, with the possibility of euro zone countries providing a safety net.

Following are some questions and answers exploring the discussions that have gone on between the EU and Greece, and looking ahead to a summit of EU leaders on March 25-26, when Greece's situation will be high on the agenda.

What is Greece's problem and what does it want?

Because of profligate spending over nearly a decade and false statistics-keeping, Greece is faced with a budget deficit of nearly 13% of its gross domestic product and debts edging towards 120% of annual output.

It now has to raise taxes and cut spending to bring its budget into line, while also raising money in financial markets to finance its debts. This year it will have to borrow 53 billion euros, much of which will be used to meet interest payments, including 20 billion euros in April and May alone.

Given the risks attached to that much borrowing when the country's finances are in such disarray, investors are demanding a higher premium to buy Greek debt.

At the moment, Greece must pay an interest rate around three percentage points more than Germany to borrow money in financial markets, a rate that is unsustainable in the long run.

As a result, Greece is looking to the European Union - and specifically the 16 countries that share the euro single currency - for concrete ways in which it could help if Greece were to be unable to meet its obligations.

Such financial support, even if it is not drawn on, would show financial markets that Greece is not a one-way bet and help reduce debt financing costs, the Greek government argues.

What is the EU and Eurozone position?

Whether by design or otherwise, the EU and euro zone finance ministers have essentially adopted a three-pronged strategy. First, they have urged Greece to get its finances in order, insisting the critical first step must be for Athens to reduce government spending and find sustainable ways to increase revenue so that it is better positioned to tackle its debts.

Second, at every opportunity ministers and EU leaders have made clear that they support Greece in its efforts to tackle its problems and stand ready to help if asked - verbal support that is designed to restore market confidence in Greece's ability to weather the crisis but which has not entirely succeeded.

Third, EU finance ministers have endorsed a "mechanism" - which they have not disclosed - which will be used to help Greece if it asks for assistance.

The mechanism, which would essentially amount to a bailout, is expected to involve bilateral loans. EU member states, particularly Germany, are very reluctant to resort to such measures, which would be the first bailout in the euro zone since the euro came into being a decade ago. Any such move would probably weaken the euro further.