Eurozone agrees £95bn Greek bail-out

Greece has agreed to make major austerity cuts in return for a huge 110bn euro bail-out from the eurozone and the IMF.

The three-year deal is designed to prevent Greece defaulting on its massive debt and contaminating the rest of Europe.

Angela Merkel, the German Chancellor, said the deal was the only way to save the euro and she hoped it would encourage other countries not to get in the same situation as Greece.

However, there is still a struggle ahead for Greece as its economy is still deep in recession. Over the weekend, the Government forecast GDP would drop 4% in 2010. It also warned its national debt, which is currently at around 115% of GDP, would rise to 149% of 2013 before falling.

The austerity plan Greece will have to follow aims to achieve fresh budget cuts of 30bn euros over three years with the aim of cutting Greece's public deficit to less than 3% of GDP by 2014 from the present 13.6%.

Measures Greece will have to adopt include scrapping bonus payments for public sector workers, banning increases in public sector salaries, increasing VAT from 21% to 23% and raising tax on fuel, alcohol and tobacco by 10%.

The EU will provide 80bn euros of funding with the IMF supplying the remainder, although the deal must first be approved by some parliaments in the 15 other eurozone countries. A first loan tranche will be given before 19 May when Greece's next debt repayment is due.