Tags: EU | Greece | Financial | Crisis

EU Finance Chief Orders Greece to Make More Cuts

Monday, 01 March 2010 07:10 AM

The EU pressed Greece hard to make more painful budget cuts amid reports that fellow European nations such as France and Germany are preparing a financial rescue to get the country out of its debt crisis.

Europe's financial affairs chief Olli Rehn insisted Monday that additional measures were necessary, a view he said was shared by the European Central Bank and the International Monetary Fund.

"I want to encourage the Greek authorities to consider and announce additional measures in the coming days" to meet deficit targets for 2010, he said after talks with Finance Minister George Papaconstantinou in Athens.

"I am aware that the effort of consolidation will not be easy," Rehn said. "But it is my firm belief respect of the targets for deficit and debt reduction are indispensable."

Papaconstantinou said the center-left government will do "whatever is necessary — and that includes new measures" to the budget deficit by four percentage points this year.

Rehn will also meet Prime Minister George Papandreou and other senior officials to address the austerity program which the EU has warned must be expanded.

The talks came amid reports that officials in fellow European countries are preparing a bailout for Greece, to be finalized this week.

A Greek default would be a severe blow to the shared euro currency and could hurt European banks that have bought Greek government bonds.

The Wall Street Journal reported that state-owned banks and bond investors in France and Germany would be willing to buy as much as 30 billion euros ($41 billion) in Greek bonds to calm market fears of a default. It cited anonymous sources familiar with the situation.

This could help the country meet its short-term debt needs, as some 20 billion euros ($27 billion) worth of government bonds mature by the end of May. Greece plans to borrow some 54 billion euros through sovereign debt issues this year, and has so far raised around 13 billion euros.

In a television interview Sunday, French Finance Minister Christine Lagarde said she was confident Greece would manage to successfully refinance "via the means that we are now studying ... involving private partners, public partners, or both."

She did not provide further details.

"Greece will not be left in the lurch ... on condition of course that it respects the engagements it took vis-a-vis its European partners in its stabilization plan," she said.

Although German Chancellor Angela Merkel did not explicitly rule out the reported rescue measures, she denied any taxpayer money would be spent on Greece: "We have a contract which rules out the possibility of bailing out other nations," Merkel told German broadcaster ARD in an interview Sunday night.

Papandreou is due to see Merkel in Berlin on Friday, and will fly to Washington March 9 for talks with U.S. President Barack Obama.

On Monday, he pledged again to pull Greece through its worst postwar economic slump and appealed for ordinary Greeks to back the effort.

"It is extremely urgent for us to address the dramatic fiscal problem, because it is threatening to strip us of any ability to determine our own fate," Papandreou told a cabinet meeting. "And we will do so. We will not allow Greece to slide further, or finally sink.

"We are asking Greeks today to join in the common effort to save our country. And the overwhelming majority is prepared to do so."

Under intense EU pressure to show tangible fiscal progress or tighten the belt more, Greek officials have pledged to take further action if needed but are balking at additional cuts to the salaries of the country's estimated 750,000 public sector workers.

Greece shocked its EU partners and global markets last year, abruptly revising its budget overspending figures to 12.7 percent of annual economic output — over four times the EU limit and up from an initial estimate of under 4 percent of GDP. The country's woes undermined confidence in the common European currency and sent Greece's borrowing costs to crippling heights.

The spread between Greek 10-year bonds and equivalent German issues — a key indicator of market trust — narrowed to 312.8 basis points Monday from around 340 Friday, but remain at a high level.

Greek stocks rallied on hopes of a rescue, with the benchmark general index up 1.95 percent in early afternoon trading.

The EU has given Athens until March 16 to show progress with its pledge to cut the deficit by four percent of GDP this year, gradually bringing it to under 3 percent in 2012.

The government, which came to power five months ago, has announced a freeze on public sector salaries and hiring, while raising consumer taxes and retirement ages.

However, a team of EU, ECB and IMF inspectors last week urged further cuts. Labor Minister Andreas Loverdos said Brussels was looking for an extra reduction in outlays of about 1.4 billion euros ($1.9 billion), denying press reports the figure was closer to 5 billion euros.

Opinion polls show most Greeks understand the need for belt-tightening. A survey published in Sunday's Real News newspaper found that 53 percent of respondents think additional austerity will be needed, while 58.7 percent are prepared to make further sacrifices.

Some 75 percent backed further public spending cuts, but more than 87 percent opposed pension cuts. The poll gave no margin of error.

But labor unions fiercely oppose many of the measures announced so far.

Taxi drivers will be on strike on Tuesday and Wednesday, and kiosk owners are closing their businesses Tuesday. Both unions protest government plans to force them to issue receipts, a new attempt to crack down on rampant tax evasion.

Some 50,000 people demonstrated through Athens last week during a general strike against the austerity plan.

On Tuesday, parliament is expected to approve draft legislation to improve data reporting transparency and make the national statistics service independent of government intervention.

The reforms follow years of unreliable accounting practices, which contributed to the abrupt revision in Greece's deficit figures and drew blistering criticism from Brussels.

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The EU pressed Greece hard to make more painful budget cuts amid reports that fellow European nations such as France and Germany are preparing a financial rescue to get the country out of its debt crisis. Europe's financial affairs chief Olli Rehn insisted Monday that...
Monday, 01 March 2010 07:10 AM
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