Since early 2010, the Eurozone has been facing a major debt crisis. The governments of several countries in the Eurozone have accumulated what many consider to be unsustainable levels of government debt, and three—Greece, Ireland, and Portugal—have turned to other European countries and the International Monetary Fund (IMF) for loans in order to avoid defaulting on their debt. The crisis now threatens to spread to Italy and Spain, respectively the third and fourth largest economies in the Eurozone. Greece has been at the center of the Eurozone debt crisis. It has the highest levels of public debt in the Eurozone, and one of the biggest budget deficits. Greece was the first Eurozone member to come under intense market pressures and the first to turn to other Eurozone member states and the IMF for financial assistance. Over the past year, the IMF, European officials, the European Central Bank (ECB), and the Greek government have undertaken substantial crisis response measures. At the behest of European leaders in July 2011, holders of Greek bonds have also indicated that they will accept losses on their investments to alleviate Greece's debt payments in the short-run. If these plans are carried out, Greece will be the first advanced economy to default in almost half a century. The Greek debt crisis is of continuing interest to the U.S. Congress. The United States and the European Union (EU) have the largest economic relationship in the world, and there are concerns about how economic turmoil in Greece and the Eurozone more broadly could impact the U.S. economy. There has been particular concern about the exposure of U.S. financial institutions to Greece. Additionally, the United States has the largest financial commitment to the IMF of all the IMF members. Some Members of Congress have raised questions about whether Greece's IMF program is an appropriate use of IMF resources. These concerns have led to a number of congressional hearings and legislation in the 111 th and 112 th Congresses. This report explains the causes of the crisis, the policy responses to the crisis, and assesses crisis response measures to date. It also highlights the implications of the Greek crisis for the broader Eurozone debt crisis and EU integration. It concludes with an analysis of issues of particular interest to Congress, including the impact of the Greek debt crisis on the U.S. economy, the exposure of U.S. banks to Greece and other distressed Eurozone economies, and IMF involvement in the crisis. The Greek government has a long history of problems with its public debt—it has spent more than half the years since 1832, when it gained independence from the Ottoman Empire, in default. Economists point to several deeply entrenched features of the Greek economy and Greek society in general that have prevented sustained economic growth and created the conditions underlying the current crisis. Chief among these are pervasive state control of the economy, a large and inefficient public administration, endemic tax evasion, and widespread political clientelism (see text box below). An influx of capital at low interest rates during the 2000s and the global financial crisis of 2008-2009 further exacerbated these problems, straining public finances to an unsustainable degree. As Greece prepared during the 1990s to adopt the euro as its national currency, its borrowing costs dropped dramatically. Interest rates on 10-year Greek bonds were dropped by 18% (from 24.5% to 6.5%) between 1993 and 1999. Investors believed that there would be widespread convergence among countries in the Eurozone. This belief was reinforced by the policy targets, called convergence criteria, that countries had to meet in order to be eligible to join the Eurozone. Additionally, the common monetary policy was to be anchored by economic heavyweights, including Germany and France, and managed conservatively by the ECB. EU member countries were also to be bound by rules in the Stability and Growth Pact that limited government deficits (3% of GDP) and public debt levels (60% of GDP). These limits were to be enforceable through fines of up to 0.5% of GDP. All of these factors created new investor confidence in Greece and other Eurozone member states with traditionally weaker economic fundamentals compared to, for example, Germany. The influx of capital and pursuit of meeting convergence criteria did not result in a fundamental change in how the Greek economy was managed or in investments that increased the competitiveness of the economy. The Greek government took advantage of greater access to cheap credit to pay for government spending and offset low tax revenue. The government also borrowed to pay for imports from abroad that were not offset by exports overseas. Government budget and trade deficits ballooned during the 2000s (see Figure 1 ) and borrowed funds were not channeled into productive investments that would generate future growth, increase the competitiveness of the economy, and create new resources with which to repay the debt. Instead, the inflows of capital were used to fund current consumption that did not yield streams of revenue with which to repay the debt. EU policies that had been put in place to provide a check on the accumulation of public debt failed to do so. Since 2003, the EU has initiated more than 30 cases against members in violation of the fiscal rules set out in the Stability and Growth Pact, including Greece. Through this process, EU institutions have reprimanded member states in violation of the deficit and debt limits and pressured them to consolidate public finances. It has never imposed a financial sanction against a member state in violation of these limits, however. The Greek government's reliance on borrowing from international capital markets to pay for budget deficits and trade deficits left it vulnerable to shifts in investor confidence. If investors lost confidence in the Greek government's ability or willingness to repay its debt, they would stop lending to the government or charge interest rates that were higher than what the Greek government could afford. Lack of access to new funds would make it difficult for the government to borrow to repay existing debt as it became due (called rolling over its debt), meaning that the government would have to implement austerity measures quickly or risk defaulting on its debt. Starting in 2009, investor confidence in Greece's ability to service its debt dropped significantly. The global financial crisis of 2008-2009 and the related economic downturn strained the public finances of many advanced economies, including Greece, as government spending on programs, such unemployment benefits, increased and tax revenues weakened. Greece's reported public debt rose from 106% of GDP in 2006 to 126% of GDP in 2009. Additionally, in late 2009, the new government, led by Prime Minister George Papandreou, revealed that previous Greek governments had been under-reporting the budget deficit. The new government revised the estimate of 2009 budget deficit from 6.7% of GDP to 12.7% of GDP. This was shortly followed by rating downgrades of Greek bonds by major credit rating agencies. Allegations that Greek governments had attempted to obscure debt levels through complex financial instruments contributed further to a drop in investor confidence. Greece's 2009 budget deficit was subsequently revised upwards a number of times, finally to 15.4% of GDP. As investors became increasingly nervous that the Greek government's debt was too high, and that it would default on its debt, they started demanding higher interest rates for buying and holding Greek bonds (see Figure 2 ). Higher interest rates compensated investors for the higher risk involved in holding Greek government bonds, but they also drove up Greece's borrowing costs, exacerbated its debt levels, and caused Greece to veer towards default. European leaders, the IMF, and the ECB agreed that an uncontrolled, disorderly default on Greek debt would be extremely risky and should be avoided at all costs. They feared that such a default could spark a major sell-off of bonds of other Eurozone members with high debt levels and that European banks exposed to Greece and other Eurozone governments would not be able to weather losses on those investments. Fear of contagion and financial turmoil drove a major policy response by the Europeans, the IMF, the Greek government, and central banks in May 2010 to avoid a Greek default. When Greece again veered towards default more than a year later, a second crisis response was announced in the summer of 2011. To date, the policy responses have succeeded in avoiding a disorderly Greek default. They have been less successful in putting Greece on a clear path to recovery and containing the crisis. The first round of crisis response measures focused on financial assistance from the Eurozone and the IMF, paired with austerity measures and reforms implemented by the Greek government. Central banks also played a role in providing liquidity in the region. In May 2010, Eurozone leaders and the IMF announced a three-year package of €110 billion (about $158 billion) in loans to Greece at market-based interest rates. Of the €110 billion, the Eurozone countries pledged to contribute €80 billion (about $115 billion) and the IMF pledged to contribute €30 billion (about $43 billion). Disbursement of funds was made conditional on implementation of economic reforms, as discussed below. Seeking to prevent the spread of the crisis beyond Greece, EU leaders also created in May 2010 a new European mechanism for providing financial assistance to Eurozone member states under market pressures. The mechanism consists of two temporary, three-year lending facilities that could make loans totaling €500 billion (about $718 billion) to Eurozone members facing debt crises. EU leaders also suggested that the IMF could provide additional support. IMF and EU programs were subsequently provided to Ireland and Portugal (see Table 1 ). In March 2011, EU leaders agreed to create a permanent lending facility, the European Stability Mechanism (ESM), to replace the temporary facilities after they expired in mid-2013. As a condition of financial support from the IMF and Eurozone countries, the Greek government has undertaken ambitious fiscal consolidation measures and economic reforms. An austerity program outlined in May 2010 aimed to reduce the government's budget deficit by 11 percentage points through 2013, bringing it below 3% of GDP by 2014.