What's going on with Greece and its economy?

  • 26 January 2015
The Parthenon in Athens

Greece is a country gripped by huge money problems and has elected a new government to try and sort things out. But how have things got this bad?

The new Greek government, elected over the weekend, say they've had enough of the whole country feeling poor.

Many people there have lost their jobs, their homes and some can't even afford to feed their families.

The new Greek Prime Minister, Alexis Tsipras, wants to do a deal with the leaders of Europe, to stop the very strict money rules the country has had to follow for the past few years.

They say those rules haven't helped Greece and the country's still in big trouble with money.

Student protestors in Greece, 2011
Many people weren't happy with the tough money rules

How did Greece get in trouble?

Greece borrowed loads of money over the last 10 years or so - both from European banks and from other countries' governments.

It used the money to run the country, pay for the 2004 Olympic Games and also for things like big pay rises for people who are paid by the government.

But when you borrow money, you have to pay it back, with what's called 'interest': meaning you pay back more money than you borrowed to begin with.

Alexis Tsipras
Greece's new leaders don't want to have to pay back all their debts

In 2008, the whole world was hit by a banking crisis where all the world's banks were worried they wouldn't get their money back.

The cost of borrowing money from banks went up hugely - and Greece had borrowed and spent so much that it couldn't afford to repay its debts.

Greece isn't alone though - all countries borrow money, and Portugal, Spain, Italy and Ireland are all very badly in debt, too.

Why are other countries so worried?

If Greece were to completely run out of money, it would cause huge problems for all the countries and banks in Europe, because they would lose all the money they lent to Greece.

Euro sign outside the European Central Bank in Frankfurt
Greece has borrowed hundreds of billions of euros

Britain's affected too, even though it doesn't use the euro.

Because European countries buy so much of our stuff, what happens to those countries would affect Britain too.

Tough money rules for Greece

In 2011, other countries in Europe, led by France and Germany, clubbed together to try to help Greece out.

They decided to lend it more money - hundreds of billions of euros - but things are so bad that even that amount wasn't enough.

Europe's leaders decided that the banks that had lent money to Greece should agree to cut the amount the country owed them by half - and that European governments would give Greece even more money.

But all of this came with strict conditions - that Greece must stop spending so much money.

Many people in Greece weren't happy with the conditions and there were lots of protests on the streets against the government's plans to raise taxes and cut spending.