Greece Faces EU grilling

ATHENS: Greek officials are bracing for a European Union grilling next week over faulty national statistics as the country awaits approval of a national crisis plan on its debt-hit economy. European finance ministers on Tuesday are to tell Athens to clean up its accounting practices and improve the administration of key institutions, according to a draft statement seen by a French news agency. The commission last week published a damning report on Greece’s “unreliable” economic figures, increasing chances the EU executive will launch infringement proceedings against the country in the near future. Recession-mired Greece has a public spending deficit that rose to 12.7 percent of output last year, far above the 3.0 percent ceiling permitted to countries sharing the euro.

It is also saddled with a debt constituting 113 percent of gross domestic product (GDP), which last month prompted the leading rating agencies to downgrade the country’s credit standing.

The Greek Socialist government, which came to power in October after over five years of Conservative rule, on Thursday unveiled a three-year crisis blueprint to cut back a public deficit of over 30 billion euros and rein in a general government debt estimated to exceed 294 billion euros this year.

The plan aims to save more than 10.3 billion euros (15 billion dollars) in 2010 with improved tax collection, cost cuts and reduced arms spending to bring the public deficit to 2.8 percent of output by 2012.

The European Commission is expected to comment by late January on the plan, which the Greek finance ministry said it drafted with assistance from EU and European Central Bank officials who visited Athens earlier this month.

The council of EU finance ministers is also expected to discuss the plan at a scheduled meeting on February 15-16.

“This is a document which we feel has all the prerequisites to be our pilot, our map for coming years,” Greek Finance Minister George Papaconstantinou said in presenting the plan.

“In the first six months everybody will have realised whether we mean business or whether we are drawing plans on paper,” he told reporters.

News of the plan initially did little to encourage investors, with the yield on Greece’s 10-year sovereign bond rising to more than 6.0 percent on Thursday for the first time since March 2009.

But tension eased on Friday when the yield fell back to 5.973 percent. Bond prices and yields move in opposite directions.

At Citigroup Global Markets, analysts said that although political pressure from the European Union “will likely remain high, … we reckon that the probability of a Greek default remains very small.”

“We believe that the main drawback to the (Greek) program is that it is too focused on the 2010 deficit and too little on the following years. We reckon that this year’s target may be achievable, but sizeable challenges remain on how to reduce the deficit thereafter.”

The Greek government has also pledged to restore the credibility of its official figures, having caused an uproar in Brussels in October by announcing that the previous Conservative administration had under-reported the deficit.

Across Europe, there is concern that serious fiscal problems in Greece could threaten the credibility of the eurozone and could be a precursor to similar debt crises in other weaker European economies.

Several of Greece’s eurozone partners have also criticised Athens as its financial woes have put strong strain on the euro in recent weeks.

“The Greece example is putting us under great, great pressures,” German Chancellor Angela Merkel said on Thursday, adding: “The euro is in a very difficult phase for the coming years.”

Greece’s troubles have given rise to suggestions that it might leave the eurozone altogether, a notion discounted by European Central Bank head Jean-Claude Trichet as “absurd.”

But Trichet warned last week that Greece could count on no special treatment from the bank and would ultimately have to solve its own problems.

Some analysts are meanwhile questioning whether leaving Greece to default — another prospect aired in past weeks — would be all that beneficial.

“Greece is just the starkest example of the problems facing economies that have lost competitiveness within the eurozone and now have weak public finances and poor growth prospects,” Simon Tilford, chief economist at the Centre for European Reform, wrote in the Financial Times on Friday.

“Greece’s problems cannot be solved by it alone,” he argued. “Nor would a Greek default be the cleansing experience that many people in the stronger member states appear to imagine.”