How bad is the problem

The fiscal crisis that began in Greece late in 2009 quickly spiralled into concern about the fate of other nations in the eurozone and their levels of government debt.

In particular, attention swung to the so-called ‘PIIGS’ group of countries (Portugal, Italy, Ireland, Greece and Spain). There five countries are where the majority of the concerns over sovereign debt default lie.

All fail the European Union’s stability and growth pact rules, which states that all 16 members of the eurozone must limit their budget deficit to 3% of gross national product while public debt level must not exceed 60%.

All have introduced austerity measures to try to reduce the scale of both public expenditure and national borrowing, but to conform to the measures demanded by the EU, the cutbacks will be severe.

Greece’s 2009 budget deficit was 13.6%, while the country’s debt reached 110% of gross domestic product.

In May, Prime Minister George Papandreou announced a series of austerity measures including deep budget cuts, a freeze on public sector wages, pension reforms and increases in fuel taxes to slash the deficit below 3% of GDP by the end of 2012.

In return, the Mediterranean country secured a €110bn loan package over three years, with €80bn of that coming from the European Union and the remainder from the International Monetary Fund.

In August, a two-week review by the EU and the IMF of the government’s austerity programme concludes Greece’s budget deficit restructuring measures are on track, despite widespread protests and strikes about the scale of the cutbacks.

Portugal's budget deficit is 9.4% according to the latest annual figures published by European Union statistics office Eurostat. In May, Prime Minister Jose Socrates announced that income tax will increase between 1% and 1.5% and VAT will be upped to 21% from 20% previously. Politicians and public company bosses will take a 5% pay cut.

Spain has a budget shortfall equivalent to 11.2% of GDP and an unemployment rate of over 20%, the highest in the entire eurozone. On 12 May, Spain unveiled drastic new measures to cut its deficit. Spain’s Prime Minister Jose Luis Rodriguez Zapatero announced cuts in civil service wages, pensions, social welfare spending and investment.

Ireland's deficit stands at 14.3% of GDP, almost five times the 3% level allowed under European Union rules. However, the Dublin government has been praised for taking an axe to the public sector and committing to €4bn of spending cuts for this year’s budget.

Italy's budget deficit, compared to its fellow PIIGS countries, is a relatively modest 5.3% of output. At the end of May, Italy became the latest PIIGS country to announce tough austerity measures to help prop up the country’s public finances. The Cabinet approved €24bn in fiscal cuts over the next two years. The plan includes three-year pay freezes for most public workers and health spending cuts.