greece

Over the past decade, Greece took full advantage of a strong euro and rock-bottom interest rates to fuel a debt binge by the country's consumers and its government. When the global economy crumpled, the stage was set for a financial crisis.

Its trigger was Greece's admission in late 2009 that its government deficit would be 12.7 percent of its gross domestic product, not the 3.7 percent the previous government had forecast earlier. Investors were stunned. In early 2010, the fears grew into a full-fledged financial panic, as investors questioned whether Greece's Socialist government could push through the tough measures it has promised to reduce its budget deficit. As the fear spread to Portugal and Spain, leaders of Europe's more affluent countries like Germany and France, worried about lasting damage to the euro, stepped in with a pledge to defend the currency but stopped short of an outright bailout for Greece.

For decades, both conservative and socialist governments in Greece have rewarded the demands of public sector unions with higher pay and more jobs. A total of 51 percent of the budget now goes to public sector wages and pensions.

The unions have vowed to defend their compensation with the same sort of strikes they used to win them. Striking is a bit of a national sport in Greece. In January, the country's unionized prostitutes took to the streets, protesting unlicensed competition from Russian and Eastern European immigrants. Farmers who were paid 400 million euros by the government in 2009 have been striking again, and briefly closed Greece's border with Bulgaria. Protesting dockworkers extracted big payouts from the government in November. And the country's tax collectors went on strike in February even though their services are needed more than ever.

With concessions and accessions, the country's budget has become bloated. In Parliament, for example, the administrative staff has increased to 1,500 from 700 in the last few years, even though the number of members of Parliament has remained the same. In 2009 alone, 29,000 public-sector workers were hired to replace 14,000 who retired, according to the finance ministry.

The pressing question is whether the new prime minister, the lifelong Socialist George Papandreou, can break this cycle of appeasing various constituencies. This will determine his success as a reformer, to say nothing of Greece's ability to rein in public expenditures and meet its target of a budget deficit of less than 3 percent of gross domestic product by 2012.

Mr. Papandreou, a political scion whose father and grandfather were also prime ministers, took office in late 2009. Since then, he has been sending mixed signals about his commitment to budget austerity. He and his finance minister, George Papaconstantinou, have called for unpopular sacrifices like a public-sector wage freeze, an increase in the price of gasoline and a crackdown on tax evaders.

But other moves have demonstrated less fiscal restraint. Soon after the election, Mr. Papandreou signed off on a 1.6 billion euro "solidarity handout" to low-income Greek families. He has also said he will hire 2,000 new workers in the country's energy department. His government also approved a measure giving borrowers a 12-month grace period to pay overdue debts and mortgages.