Everything you need to know about Greek debt crisis

Is Greece on a path to stability or just delaying an inevitable disaster?

The answer won't come for weeks or months, but financial analysts are not optimistic.

Greece is in talks with international creditors about a second package of rescue loans similar in size to the €110 billion bailout it received last year. The aim is to keep Greece from defaulting on its crushing national debt.

But to get the new loans, Greece will probably be forced to adopt new austerity measures, such as tax hikes and pension cuts, and the prospect of new cuts has already led to unrest in Athens.

Financial indicators, such as what it costs to insure Greek debt, suggest a default is extremely likely. Here are some questions and answers about the Greek debt crisis:

What happened Sunday?

The prime minister of Greece, George Papandreou, confirmed that his nation was talking with world lenders about a second financial rescue package "roughly equal" to what Greece received last year.

In Luxembourg, European finance ministers were meeting to consider whether to release about €10 billion to Greece from the first rescue package.

Europe and the International Monetary Fund say new loans for Greece are contingent on Greece's passing budget cuts before the end of the month. Those measures have already led to angry protests and forced the prime minister to reshuffle his government.

Who is paying for the Greek bailout?

Other European nations and the International Monetary Fund. Germany had demanded that the private sector, primarily international banks that hold Greek government bonds, share some of the pain by waiting longer to be repaid. Germany softened its demands on Friday by agreeing that any burden-sharing by private bondholders be strictly voluntary, calming the financial markets.

How likely is it that Greece will default on its debt?

Bond traders are betting a default is almost certain. It now costs more than ever to insure Greek debt. At prices quoted Friday, the insurance contracts suggest an 80 percent chance that Greece will default in the next five years, according to data from Markit, a financial information provider.

Why is a potential Greek default such a big deal?

The real worry is a domino effect. Or, to use a better analogy, says Guy LeBas, chief fixed income strategist at Janney Capital Markets, think of it as a spider web — pluck one string and the whole thing shakes.

Banks lend money to governments and to each other to make sure everyone has enough cash to operate every day, and banks insure each other's debt. If Greece defaults, banks will charge more money to make loans or stop lending altogether. At the same time, they'll have to raise at least €210 billion to cover insurance contracts on Greek debt.

That's why many analysts are drawing comparisons to what happened after the collapse of Lehman Brothers, the storied investment bank, in 2008. Lending froze up around the world, all the way down to small businesses and individual borrowers in the United States. The credit crunch deepened the worldwide recession.

At the least, bond investors would demand higher borrowing rates from other deeply indebted European countries, including Ireland, Portugal, Spain, Italy and Belgium. Borrowing costs for Ireland and Portugal have already jumped to record highs, with 10-year interest rates topping 10 percent. Just as a comparison, the U.S. rate is about 3 percent.

What is Greece doing about all this?

The Greek government wants to enact further austerity measures, such as raising taxes, cutting public wages and selling state assets. And it will probably have to before it gets a fresh bailout package. But the public has reacted angrily, staging violent protests in central Athens. The union that represents employees in the state-run electric system has threatened a strike and blackouts.