By Ben Nimmo Feb 3, 2010, 16:06 GMT
Brussels - Desperate times breed desperate measures, and right now the European Union is really worried about what Greece's economic woes are doing to the credibility of the euro.
The bloc's executive on Wednesday announced the toughest monitoring system it has ever imposed on a member state, giving it an unprecedented degree of control over national spending.
'This is not the EU jumping into the (Greek) driving seat, but at the very least, it's the police escort,' Carsten Brzeski, eurozone analyst at ING bank in Belgium, told the German Press Agency dpa.
In the autumn, the newly-elected Greek government announced that its predecessor had grossly misstated its budget deficit for 2009. The official figure stood at 3.5 per cent of gross domestic product (GPD), the revised number at 12.7 per cent.
The confession sparked a storm on financial markets which reached well beyond Athens. By mid-January, the euro itself was under pressure as fears spread that not just Greece, but other euro members such as Portugal, might be forced to default on their debt.
The single currency has fallen by 8 per cent against the dollar since December.
With those fears circling, EU Economic and Monetary Affairs Commissioner Joaquin Almunia was in no mood to trifle as he announced the European Commission's response to the crisis.
'This is the first time we have established so intensive and quasi-permanent system of monitoring, but it is needed, given the circumstances,' he said.
The bulk of the commission's report dealt with the savage cost-cutting measures which the Greek government has proposed.
The programme already includes measures such as a civil service wage freeze and excise hikes on fuel, alcohol and cigarettes, but Almunia stressed that the commission would demand still more measures if necessary.
'Every time we observe slippages, we will ask the Greek authorities to adopt additional measures,' he warned.
Simultaneously, the commission demanded that Greece, like a schoolboy put on probation, present detailed public reports every three months on how it is implementing its measures - the first time the commission has ever gone so far.
It adds up to 'probably the toughest report the commission has ever released,' said Rainer Guntermann, an economic analyst with Germany's Commerzbank.
Analysts said that the commission's hardline stance was the only way to quell market concerns over the stability of Greece and the euro, amidst persistent rumours that the country would only be kept from default by a European or international bail-out.
'Times are desperate for Greece, and possibly even for the eurozone: there are few alternatives at this stage,' said Guntermann.
They also predicted that the commission report would be welcomed by the Greek government, amidst expectations that the reform package will trigger massive opposition from trade unions.
'The stronger the recommendations, the more ammunition the government has, so at least it can keep its back straight,' Brzeski said.
But that support is likely to be a two-edged sword. Experts stress that there is no easy way for the Greek government to solve its problems, with years of painful belt-tightening ahead.
'Consolidation will take, not quarters, but years ... You have to give Greece some time to let actions follow words,' Guntermann said.
And with the EU now keeping its eyes on every move Athens makes, the Greek government has no choice but to press ahead with its reforms - no matter how much protest they cause.
'This is a one-way street. There is no possibility of a U-turn here: it's going to be painful,' Brzeski said.
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