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Tags: EU | Greece | Fix | Finances

EU Demands Greece Fix Finances, Flawed Statistics

Tuesday, 19 January 2010 12:24 PM EST

European Union finance ministers piled pressure on Greece on Tuesday to repair its overstretched public finances and what a Swedish minister described as fraudulent statistics.

With financial markets fretting about Greece's ability to service one of Europe's biggest sovereign debts, its government sought to reassure its EU partners and financial markets that it has a workable plan to cut a soaring budget deficit.

Spanish Economy Minister Elena Salgado, whose country holds the EU presidency, sought to reassure too when asked if there was a risk Greece could default on its debt.

"I think Greece is going to do all that is necessary so we're not worried about that," said Salgado, who chaired a meeting in Brussels of the 27 EU finance ministers, including Greece and the other 15 euro currency countries.

Several ministers took a tough line on Greece, whose finance minister, George Papaconstantinou, said that his government's recently conceived deficit-reduction plans had drawn a positive initial response from other ministers.

"The situation with Greek statistics has been basically fraudulent," Swedish Finance Minister Anders Borg said.

Finnish Finance Minister Jyrki Katainen said what counted now was delivery rather than promises to fix Greece's deficit.

"We need to assess whether the measures are real. We need statistics we could trust and real measures on how to consolidate the budget," he said.

"No one but Greece can help itself. There is no way to expect any outside help."

Rating agency Moody's said in a statement that uncertainty remained over implementation of a Greek government plan that "aims to partly address formidable and longstanding problems, such as endemic tax evasion and misreporting of financial data, which have undermined the government's credibility and contributed to the government's fiscal problems."

Marko Mrsnik, an associate director at Standard & Poor's rating agency, told Reuters in an interview that Greece's credit rating could be affirmed within three months if the deficit-cutting plan is successful.

But he warned: "Political and social pressures are likely. If they build up and impede the government from moving on and water down the budgetary effort, leading to failure to comply with the consolidation strategy, the ratings could be lowered."

Greece's debt burden heading for more than 120 percent of gross domestic product has triggered downgrades by debt rating agencies and market speculation about whether Athens can service its obligations or might even have to quit the euro zone.

Greece says it plans to reduce its budget deficit this year to 8.7 percent of GDP from a 2009 figure of 12.7 percent. A longer-term stability plan aims to bring the shortfall to 2.8 percent in 2012, within the 3 percent limit of the European Union's Stability and Growth Pact.

The ministers attending Tuesday's talks highlighted the need for Athens to act and to provide reliable statistics.

Greek data for 2008 was revised to a deficit of 7.7 percent of GDP, from 5.0 percent initially. The Socialist government that took power in October also announced a forecast of 12.7 percent for 2009, twice the level the preceding government had spoken of and three times as big as earlier official targets.

The EU stability pact rules ultimately allow for fines of a maximum of 0.5 percent of GDP to be imposed on countries that fall out of line but the situation has never gone that far.

While some officials have privately said there is sufficient irritation to want to slap penalties on Greece, policymakers will likely be wary because any such move could merely weaken Greek finances further.

Austrian Finance Minister Josef Proell, asked whether there might be a need to resort to financial sanctions, said now was not the time to consider such steps.

"I don't think we should be thinking about punishment. I think we should most of all be thinking about motivation and setting clear objectives to set and implement reforms and the new government seems ready to do this," he said.

"We will obviously observe and accompany them in this. Obviously Greece is going to be observed particularly closely by colleagues. This is a situation that is obviously a test where they have to prove themselves but it can absolutely be passed."

European Commissioner Joaquin Almunia said the European Commission, the EU's executive body, would present proposals on the deficit correction procedure and an action plan to improve statistics that were riven with "flaws and malfunctions."

Greece's plight highlighted the point some governments were making in calling for closer economic policy coordination in the euro zone, he said, because "the fate of one is the fate of all".

© 2024 Thomson/Reuters. All rights reserved.

European Union finance ministers piled pressure on Greece on Tuesday to repair its overstretched public finances and what a Swedish minister described as fraudulent statistics. With financial markets fretting about Greece's ability to service one of Europe's biggest...
Tuesday, 19 January 2010 12:24 PM
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