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EU demands Greece acts on debt ahead of bailout package

EUROPEAN Union governments are piecing together a possible €25bn rescue package for Greece as they demand it first intensifies efforts to slash the bloc's biggest budget deficit.

As EU Monetary Affairs Commissioner Olli Rehn flew into Athens last night for talks, German lawmakers said euro-area officials are crafting a plan to grant Greece about €25bn in aid should the need arise, possibly by using state-owned lenders such as Germany's KfW Group to buy its debt.

Luxembourg Prime Minister Jean-Claude Juncker signalled yesterday that Mr Rehn will use his visit to warn Greece it must do more to regain control of its budget and can't rely on taxpayers elsewhere. Adding to the political pressure, the fiscal strategy of Greek Prime Minister George Papandreou's government may soon be tested by investors as it readies a sale of as much as €5bn of 10-year bonds.

"Greece won't be allowed to sink on the condition it respects its commitments to stabilise its budget," French finance minister Christine Lagarde said yesterday.

"We have a certain number of proposals in the euro zone, involving either private partners or public."

Mr Rehn arrives in the Greek capital after a week in which EU officials pored over the government's books to verify it's doing enough to knock four percentage points off its budget deficit from last year's 12.7pc of gross domestic product.


The country has until March 16 to satisfy other governments and risks being pushed to increase consumer taxes and cut capital spending if it can't show sufficient progress.

"Markets still don't believe that the Greek people are willing to accept such bitter medicine or that the government has the will to see this through," said Razeen Sally, co-director of the Brussels-based European Centre for International Political Economy.

Mr Juncker, who speaks for euro-area finance ministers, indicated more will be demanded. Greece needs to "take additional actions" to reduce its shortfall and "must understand that the taxpayer in Germany, Belgium or Luxembourg isn't prepared to correct the mistakes of Greek fiscal policy," he told Greek newspaper 'Eleftherotypia'.

Greece needs to raise €53bn this year and faces more than €20bn of bond redemptions by the end of May. It vows to reduce its budget gap below the EU limit of 3pc of GDP in 2012.

KfW's purchase of Greek bonds, backed by German government guarantees, would be an emergency measure as it would risk inviting investors to speculate against other euro- region countries.

France's state-owned Caisse des Depots may also be involved, Greece's 'Ta Nea' newspaper reported over the weekend, while the 'Wall Street Journal' said the plan may run as large as €30bn.

Complicating Greece's efforts this week were warnings from Standard & Poor's and Moody's that they may soon cut the country's debt rating.

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