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Europe Returns Attention to Greece's Debt Woes

Greek Prime Minister Lucas Papademos holds a news conference after a European Union summit in Brussels, January 31, 2012.

Greek Prime Minister Lucas Papademos holds a news conference after a European Union summit in Brussels, January 31, 2012.

After adopting a continent-wide plan to control government spending, European leaders again are focusing on the perilous financial state of Greece.

Greece, despite several weeks of negotiations, has yet to reach an agreement with its private creditors to cut its debt by $130 billion, half the amount the country owes them. European heads of state and the lenders are pressuring Greece to impose more unpopular austerity measures to cut its deficit spending, regardless of who wins upcoming elections in the country.

After the European Union summit in Brussels ended early Tuesday, German Chancellor Angela Merkel said Greece's financial path cannot continue for long.

"Greece is special in the sense that there is a private sector involvement here," said Merkel. "We confirmed this yet again because the debt sustainability of Greece is particularly bad."

Caretaker Greek Prime Minister Lucas Papademos acknowledged the dire straits his country faces.

"We are now at a crossroads. We should all be united in support of the Greek government in order to dig our country out of its hole. It is very important, this sacrifice so far made by the Greek people, in order not to have this sacrifice lost," said Papademos.

Greece is attempting to secure the agreement with 32 large financial institutions on the debt reduction, even as its seeks to win European approval for a new $169-billion bailout, which is its second in two years. Without the new aid package, the Athens government says it will default on repayment of a $19-billion bond in March.

The EU countries, with the exception of Britain and the Czech Republic, adopted a plan to impose tighter controls on the spending of individual governments, with sanctions against those that fail to comply. The EU summit also approved a $661-billion bailout fund, to take effect in July, to cover funding emergencies of debt-ridden countries in the coming years.

Merkel said the agreements show the rest of the world that Europe can act in a unified way to solve the two-year governmental debt crisis, economic turmoil that also has forced Ireland and Portugal to seek international bailouts.

"Now, two months after [the start of talks about the new treaty], we can safely say that we have concluded this negotiating process. It is an important step forwards towards a stability union," said Merkel. "For those that look at Europe from the outside, for those that look at the eurozone from the outside, it's very important that we have shown this degree of commitment."