( CNN ) -- European Union leaders have hailed an agreement to use funds from both Europe and the International Monetary Fund to help financially-crippled Greece as important for the euro zone . So what 's the problem in Greece ? 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 . 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 . So what happens now ? Greece 's credit rating -- the assessment of its ability to repay its debts -- has been downgraded to the lowest in the eurozone , meaning it will likely be viewed as a financial black hole by foreign investors . This leaves the country struggling to pay its bills as interest rates on existing debts rise . The Greek government of Prime Minister George Papandreou , which inherited much of the financial burden when it took office late last year , has already scrapped most of its pre-election promises and must implement harsh and unpopular spending cuts . Will this hurt the rest of Europe ? 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 . So what is Greece doing ? As already mentioned , 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 . Are people happy with this ? Predictably , quite the opposite and there have been warnings of resistance from various sectors of society . Workers nationwide have staged strikes closing airports , government offices , courts and schools . This industrial action is expected to continue . How are Greece 's European neighbors helping ? Led by Germany 's Chancellor Angela Merkel , all 16 countries which make up the euro zone have agreed a rescue plan for their ailing neighbor . The package , which would only be offered as a last resort , will involve co-ordinated bilateral loans from countries inside the common currency area , as well as funds and technical assistance from the International Monetary Fund ( IMF ) . According to a joint statement on the EU Web site , a `` majority '' of the euro zone States would contribute an amount based on their Gross Domestic Product ( GDP ) and population , `` in the event that Greece needed support after failing to access funds in the financial markets . '' This means Germany will be the main contributor , followed by France . Although the announcement did not mention any specific figure , a senior European official quoted by Reuters said that the potential package may be worth around 20 billion euro ( US $ 26.8 billion ) . However any European-backed loan package requires the unanimous approval of European Union members , meaning any euro zone country would have effective veto power .
Greece 's national debt is now bigger than the country 's economy . There are fears Greece 's problems will infect other eurozone countries . Country has implemented austere measures to try to curb debt .