Introduction Greece's financial mismanagement had been ongoing for decades.

Years of unrestrained spending, cheap lending and failure to implement financial reforms left Greece badly exposed when the global economic downturn struck. This whisked away a curtain of partly fiddled statistics to reveal debt levels and deficits that exceeded limits set by the Eurozone. The Greek government borrowed heavily and went on something of a spending spree after it adopted the euro. These included benefit programmes, the public sector and government committees, as well as loss making utilities, such as Olympic Airways, the national airline, that was eventually privatised in 2008. Public sector wages practically doubled in the past decade. However, as the money flowed out of the government's coffers, tax income was hit because of widespread tax evasion. When the global financial downturn hit, Greece was ill-prepared to cope. There has been much public opposition to the austerity programme And it comes as Greece announced that the 2011 deficit is projected to be 8.5% of GDP - down from 10.5% in 2010 - but short of the 7.6% target set by the EU and IMF. How big are these debts? National debt, put at 300 billion ($413.6 billion), is bigger than the country's economy, with some estimates predicting it will reach 120 percent of gross domestic product in 2010. The country's deficit -how much more it spends than it takes in -- is 12.7 percent. The Bailouts Greece received its original bailout in May 2010. The reason it had to be bailed out was that it had become too expensive for it to borrow money commercially. It had debts that needed to be paid and as it couldn't afford to borrow money from financial markets to pay them, it turned to the EU and the IMF. The idea was to give Greece time to sort out its economy so that the cost for it to borrow money commercially would come down. But that did not happen. Indeed, the ratings agency S&P recently decided that Greece was the least credit-worthy country it monitors. As a result, Greece has lots of debts that need to be paid, but it cannot afford to borrow commercially and does not have enough money from the first bailout to pay them.

Eurozone leaders have subsequently agreed a further 109bn-euro package, but this has yet to be fully ratified by member states. Austerity measures The government has started slashing away at spending and has implemented austerity measures aimed at reducing the deficit by more than 10 billion ($13.7 billion). It has hiked taxes on fuel, tobacco and alcohol, raised the retirement age by two years, imposed public sector pay cuts and applied tough new tax evasion regulations. Despite the bailouts, many people think Greece will default. They certainly do in the financial markets, which seem to have accepted that Greece is heading for an "orderly default". In July, eurozone leaders proposed a plan that would see private lenders to Greece writing off about 20% of the money they originally lent, whereas the latest plan is expected to include a 50% write-off. What continues to worry the markets, however, is fear of a "disorderly default" and the domino effect that might have within the eurozone. Major eurozone governments have been criticised for a lack of political leadership, and there have been signs of divisions within the ECB. The concern in the markets is that the eurozone's political structures do not have the authority to deal with the magnitude of the economic problems. Consequences of the crisis Could the crisis spread? The aim of the last Greece bailout - as with the first bailout - is to contain the crisis. The bailouts of Portugal and the Irish Republic were designed to tide both countries over until they could borrow commercially again, just as was hoped for Greece. If that hasn't been possible in Greece, investors may question whether the same solution will work for the other two bail-out recipients. There are also concerns about the situations in Italy and Spain, both of which have seen their borrowing costs rise. The Spanish and Italian economies are far bigger than those of Greece, Portugal and the Irish Republic and the European Union would struggle to bail them out if that became necessary. What would happen if Greece defaulted?

Greece is already in major breach of eurozone rules on deficit management and with the financial markets betting the country will default on its debts, this reflects badly on the credibility of the euro. There are also fears that financial doubts will infect other nations at the low end of Europe's economic scale, with Portugal and the Republic of Ireland coming under scrutiny. If Europe needs to resort to rescue packages involving bodies such as the International Monetary Fund, this would further damage the euro's reputation and could lead to a substantial fall against other key currencies. Europe's banks are big holders of Greek debt, with perhaps $50bn-$60bn outstanding. An "orderly" default could mean a substantial part of this debt being rescheduled so that repayments are pushed back decades. A "disorderly" default could mean much of this debt not being repaid - ever. Either way, it would be extremely painful for banks and bondholders. What's more, Greek banks are exposed to the sovereign debts of their country. They would need new capital, and it is likely some would need nationalising. A crisis of confidence could spark a run on the banks as people withdrew their money, making the problem worse. That confidence crisis may spread to overseas banks, which could stop lending until the full extent of a default was known. It might be a repeat of the credit crunch that pushed European and the US into recession three years ago.