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EU Commissioner: Greek austerity plans too weak
February 15, 2010
EU Commissioner for Enlargement, Olli Rehn, expects Greece to introduce additional measures to cut its debt
Robert Lindsay
The Greek Government looked set on a collision course with the European Commission today as its finance minister denied suggestions that it needed to take further austerity measures to cut its debt.
Hours ahead of a two-day meeting of eurozone finance ministers in Brussels, being held to scrutinise Greece's existing plan to cut is deficit, Olli Rehn, the new EU Commissioner for Economic and Monetary Affairs said: "Our view is that risks... are materialising, and therefore there is a clear case for additional measures.”
But George Papaconstantinou, the country’s Finance Minister, said the EU needed to show more support to Greece instead of expecting more detailed austerity measures.
“My guess is that what will stop markets attacking Greece at the moment is a further more explicit message that makes operational what has been decided last Thursday at the European council."
Mr Papaconstantinou said Greece “is doing enough” to reduce its public deficit from 12 per cent to 8 per cent of GDP this year, under emergency fiscal cuts submitted to the European Commission which EU finance ministers are examining.
He said: “We are trying to change the course of the Titanic, it cannot be done in a day.” Although, he added: “If additional fiscal measures are needed, we will take them.”
There are doubts over whether Greece’s plan for a public sector pay freeze and other spending cuts already announced will be enough.
Mr Rehn said: “We expect that in due course... the (Greek) government will take additional measures to reach this objective.”
Investors are looking for a concrete European Union bailout plan to prevent Greece’s debts from further threatening the credibility and cohesion of the eurozone. However, analysts believe this is unlikely to emerge from today's meeting.
The euro, which had been edging up from a low point this morning, fell back again on Mr Rehn's comments this afternoon, falling 0.3 per cent from its mid-morning high to $1.359, not far from Friday’s low of $1.3532, its weakest since May 2009.
The currency has fallen nearly 10 per cent since late last year amid fears over Greece's giant debts and worries that Spain and Portugal may face similar debt problems.
The European Commission has approved the Greek austerity plan and last week agreed to work with the European Central Bank (ECB) to monitor Greece.
Jean-Claude Trichet, the President of the ECB, said on Sunday that Greece must take extra measures to fix its budget deficit and scrutiny of its economic indicators must be heightened.
But Greece is fighting to postpone any decision on further measures such as an increase in VAT and further public sector wage cuts until mid-March, when it must provide a full timetable for implementing its austerity plan to EU officials.
Senior figures at the European Commission believe that the plans announced so far could leave Greece short by as much as 1.25 of the 4 percentage-point cut required by the end of 2010.
Suggestions that Greece needs to do more will come as a blow to George Papandreou, the Prime Minister.
He announced extra measures this month, which helped to secure European Commission support for Greece’s three-year plan to cut its deficit to 2.8 per cent by 2012.
Mr Papandreou is already furious at what he believes is a lack of real support for his country, which has been hit by strikes as unions protest about cuts. He said on television that his country had become a “guinea pig in a battle between Europe and the international markets”.
There were further damaging disclosures over the weekend about how Greece had hidden the true size of its debt in order to meet the criteria for the euro in 2001. In one deal the Government received cash in exchange for mortgaging airport landing fees to a bank. A similar deal in 2000 handed over vast sums in future lottery ticket revenue for money up front.
The Greek Government kept the transactions off the balance sheet by classifying them as sales rather than loans, although new rules meant that they eventually had to be declared.
Wall Street banks including Goldman Sachs helped Greece to mask its debt, according to The New York Times. The bank channelled at least $1 billion (£650 million) to Greece in the form of a currency trade in 2002, the newspaper said, and in November last year offered a financial instrument to push debt from Greece’s healthcare system further into the future.
JP Morgan economists said in a note: “Europe needs a liquidity fund with conditionality, but finance ministers there are unlikely to deliver one this week ... Positions have moved quickly from short US dollar to small long, but the policy environment is too murky to reverse dollar strength.”
February 15, 2010
EU Commissioner for Enlargement, Olli Rehn, expects Greece to introduce additional measures to cut its debt
Robert Lindsay
The Greek Government looked set on a collision course with the European Commission today as its finance minister denied suggestions that it needed to take further austerity measures to cut its debt.
Hours ahead of a two-day meeting of eurozone finance ministers in Brussels, being held to scrutinise Greece's existing plan to cut is deficit, Olli Rehn, the new EU Commissioner for Economic and Monetary Affairs said: "Our view is that risks... are materialising, and therefore there is a clear case for additional measures.”
But George Papaconstantinou, the country’s Finance Minister, said the EU needed to show more support to Greece instead of expecting more detailed austerity measures.
“My guess is that what will stop markets attacking Greece at the moment is a further more explicit message that makes operational what has been decided last Thursday at the European council."
Mr Papaconstantinou said Greece “is doing enough” to reduce its public deficit from 12 per cent to 8 per cent of GDP this year, under emergency fiscal cuts submitted to the European Commission which EU finance ministers are examining.
He said: “We are trying to change the course of the Titanic, it cannot be done in a day.” Although, he added: “If additional fiscal measures are needed, we will take them.”
There are doubts over whether Greece’s plan for a public sector pay freeze and other spending cuts already announced will be enough.
Mr Rehn said: “We expect that in due course... the (Greek) government will take additional measures to reach this objective.”
Investors are looking for a concrete European Union bailout plan to prevent Greece’s debts from further threatening the credibility and cohesion of the eurozone. However, analysts believe this is unlikely to emerge from today's meeting.
The euro, which had been edging up from a low point this morning, fell back again on Mr Rehn's comments this afternoon, falling 0.3 per cent from its mid-morning high to $1.359, not far from Friday’s low of $1.3532, its weakest since May 2009.
The currency has fallen nearly 10 per cent since late last year amid fears over Greece's giant debts and worries that Spain and Portugal may face similar debt problems.
The European Commission has approved the Greek austerity plan and last week agreed to work with the European Central Bank (ECB) to monitor Greece.
Jean-Claude Trichet, the President of the ECB, said on Sunday that Greece must take extra measures to fix its budget deficit and scrutiny of its economic indicators must be heightened.
But Greece is fighting to postpone any decision on further measures such as an increase in VAT and further public sector wage cuts until mid-March, when it must provide a full timetable for implementing its austerity plan to EU officials.
Senior figures at the European Commission believe that the plans announced so far could leave Greece short by as much as 1.25 of the 4 percentage-point cut required by the end of 2010.
Suggestions that Greece needs to do more will come as a blow to George Papandreou, the Prime Minister.
He announced extra measures this month, which helped to secure European Commission support for Greece’s three-year plan to cut its deficit to 2.8 per cent by 2012.
Mr Papandreou is already furious at what he believes is a lack of real support for his country, which has been hit by strikes as unions protest about cuts. He said on television that his country had become a “guinea pig in a battle between Europe and the international markets”.
There were further damaging disclosures over the weekend about how Greece had hidden the true size of its debt in order to meet the criteria for the euro in 2001. In one deal the Government received cash in exchange for mortgaging airport landing fees to a bank. A similar deal in 2000 handed over vast sums in future lottery ticket revenue for money up front.
The Greek Government kept the transactions off the balance sheet by classifying them as sales rather than loans, although new rules meant that they eventually had to be declared.
Wall Street banks including Goldman Sachs helped Greece to mask its debt, according to The New York Times. The bank channelled at least $1 billion (£650 million) to Greece in the form of a currency trade in 2002, the newspaper said, and in November last year offered a financial instrument to push debt from Greece’s healthcare system further into the future.
JP Morgan economists said in a note: “Europe needs a liquidity fund with conditionality, but finance ministers there are unlikely to deliver one this week ... Positions have moved quickly from short US dollar to small long, but the policy environment is too murky to reverse dollar strength.”
