NYT (2-7-2012) "Data show Greece's debt ratio growing as economy-shrinks" by DAVID JOLLY

By treaty, countries in the euro zone are supposed to keep their debt/GDP ratio under 60%. Greece has never met that target since it joined the euro zone. In 2001, it had a debt/GDP ratio of around 100% (debt =  GDP). Due to raising debt and shrinking GDP, its debt/GDP ratio now is close to 160% (debt > GDP).  According to the CIA World Factbook, Greece's GDP shrunk 2% in 2009, 4% in 2010, and 5% in 2011.


To get its debt ratio back down to 60%, Greece will need to 
1. decrease debt (default)
       and/or
2. increase GDP


Cutting current government spending to stop adding new debt ("austerity") has not helped much, because it has also negatively affected GDP.  If the EU really wanted to stave off default, it could  promote (and fund) new policies that increase Greece's GDP. Labor market reforms would be a promising area to start. 


Really good news clip about Greece's debt to GDP numbers


"As recently as Jan. 23, creditors wanted an average coupon of about 4.25 percent, two people familiar with the talks said then. That offer equated to a loss of about 69 percent on the net present value of Greek debt." from Bloomsberg (1-30-2012) "EU stumbles over Greek aid package as Merkel signals debt agreement delay" by By James G. Neuger and Jurjen van de Pol