EU toughens demands on Greek
INVESTOR flight from southern European debt markets has begun to subside as EU political leaders move closer to some sort of rescue for Greece, but it remains far from clear whether the Greek people will accept Europe's draconian terms.
Yields on 10-year Greek bonds have fallen back by more than 50 basis points from a wild spike to 7.15pc last week, though spreads over German Bunds are still at crippling levels.
Growing confidence that the EU will not allow a domino crisis across the edges of the eurozone led to a recovery in Spanish, Portuguese, Italian and Irish bonds.
Guido Westerwelle, Germany's foreign minister, said before flying to Athens that Greece had the "full backing" of his country and other EU partners, but warned that the EU would not tolerate any delay in carrying out spending cuts.
The EU draft calls for cuts in "average nominal wages" across the entire public sector, pensions cuts, a rise in the retirement age, a fuel levy and luxury taxes.
Greece's prime minister, George Papandreou, has agreed to cut the budget deficit from 12.7pc to 3pc in three years, but hopes to rely on growth to do much of the work.
Brussels has made short shrift of that illusion. Joaquin Almunia, the EU's economics commissioner, said targets would be enforced vigorously.
"Every time we see or perceive slippages, we will ask for additional measures to correct these slippages. Never before have we established so detailed and tough a system of surveillance," he said.
Conservative leader Antonis Samaras said his party would back the austerity plans for the good of the country but it is less clear whether citizens would prove so amenable to "EU diktats", as they are described in the Greek media.
Protesters camped in front of the Greek parliament over the weekend and widespread strikes are planned this month.
"There is a huge perception gap between what Greeks think is the problem and the reality," said one hedge-fund manager with Greek ties.
"Germany is looking for some blood-letting before coming to the rescue, and I don't think the people, or even the Greek government, yet understands that."
Mr Papandreou said in Davos, Switzerland, that Greece had been targeted by speculators trying to damage the euro.
His claim serves a useful legal function because it may allow Greece to invoke Article 122 of the Lisbon Treaty, which clears the way for EU help to any member that is "in trouble for reasons outside its own control". (© Daily Telegraph, London)