Tags: EU | Europe | Financial | Crisis

EU Ministers to Warn Greece to Step Up Budget Cuts

Tuesday, 16 Feb 2010 06:53 AM

European Union finance ministers will warn Greece on Tuesday that it will have to step up harsh budget cuts if it can't prove by March 16 that an existing austerity program will shrink its massive deficit this year.

Greece has promised to reduce its budget gap from 12.7 percent of gross domestic product to 8.7 percent, seeking to calm market worries that it could default on its debt and require a bailout from the 16 countries that use the euro.

Euro zone leaders pledged last week to help Greece "if needed to safeguard the financial stability of the euro area as a whole" — but did not say how any bailout would work.

On Monday, they asked Greece to ready new spending cuts, increase sales and energy taxes and impose new levies on luxury goods, including cars — and the wider EU is expected to back that call on Tuesday.

The Greek government, which is also promising to reform pensions and healthcare, is facing opposition at home to its current plan to freeze public sector pay, with Greek customs officials walking off the job Tuesday for a three-day strike which will hamper imports and exports.

Spanish Finance Minister Elena Salgado, who leads the talks between all 27 nations on Tuesday, said she was "fully confident" that Greece would take any action that other EU countries ask of it.

"In one month from now the European Commission will evaluate the situation again and we will see if it is necessary for Greece to take more measures," she told reporters on her way into the meeting.

Sweden's Anders Borg said the crisis "is quite an urgent situation for Europe" and the onus is on Greece to make "more concrete steps ... to regain credibility."

"If they want to build credibility in the market, they must surpass expectations and they have not done that so far," he said.

Traders' fears that Greece might not make debt repayments increased Tuesday, with the spread of the Greek government bond widening to 3.35 percentage points against the benchmark German bond. The spread was below 3.00 points last week on hope of a detailed euro zone bailout plan.

Borg would not rule out help from EU nations outside the euro zone — saying "this is a matter for the whole of Europe and we should not rule out a support effort."

He also called for a strong role for the International Monetary Fund in monitoring Greek moves to cut public spending and hike taxes.

However, Luxembourg Prime Minister Jean-Claude Juncker, who heads economy talks between euro zone nations said any IMF involvement would be limited — and talk of a loan from the IMF was "absurd" for a country using the euro.

"If California has a refinancing problem the U.S. wouldn't go to the IMF. Why should we go as a euro area to the IMF if we have resources by our own to solve the problem," he told reporters.

"The IMF will not design the Greek budgetary planning," he said.

"The IMF can send technical experts to Greece because the European commission doesn't have the human resources to deal probably with the job. But it's not a matter of having the IMF design the exit strategy."

He also criticized financial markets who have taken large bets against the euro and the chances of a Greek default saying euro nations "shouldn't allow ourselves to be the target of financial markets."

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European Union finance ministers will warn Greece on Tuesday that it will have to step up harsh budget cuts if it can't prove by March 16 that an existing austerity program will shrink its massive deficit this year.Greece has promised to reduce its budget gap from 12.7...
EU,Europe,Financial,Crisis
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2010-53-16
Tuesday, 16 Feb 2010 06:53 AM
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