EU's Rehn says Greece needs to do more to reduce deficit (1st Lead)

Mar 1, 2010, 11:24 GMT

Athens - The European Union's top monetary official Olli Rehn said Monday that Greece needs to take further measures to reduce its deficit.

'I am asking the Greek government to announce new measures in the coming days,' Rehn told journalists following a meeting with Greek Finance Minister George Papaconstantinou.

Rehn arrived in Athens Monday.

Greece's finance minister reiterated that the 'government will do whatever it takes to cut the deficit ... if necessary, it will take additional measures.'

The visit comes amid signs that Athens might be close to securing a rescue package from European Union governments in exchange for promises to take fresh budget steps.

Athens came under fire from member EU states when it revealed in October that the deficit would be 12.7 per cent of GDP in 2009, four times the EU limit.

Greece's ballooning budget deficit and its problems in reining it in have shaken market faith in the strength of the euro, with EU parters fearing that the unstable market will spread to other euro zone countries that have big deficits, such as Spain and Portugal.

EU states are keen to shore up the currency's credibility, but so far have shied away from offering Athens a bail-out.

Earlier this month, the European Commission and member states put the Greek government under the strictest supervision they have ever imposed on a national government to make sure that the budget deficit is filled.

Athens has already committed to a sweeping series of cuts in public sector spending, tax raises and fighting tax evasion in a bid to restore investor confidence in its fiscal stability.

Rehn will also meet with Greek Prime Minister George Papandreou amid signs that Germany, France and the Netherlands are devising a plan to grant Greece about 25 billion euros in aid to help finance its debt, using state-run banks such as Germany's KfW and France's Caisse des Depots.

The EU monetary official is also scheduled to meet with Economic Minister Louka Katseli and Labour Minister Andreas Loverdos.

Reports said Rehn will probably insist that Greece do more to narrow the EU's largest budget gap after EU and IMF inspectors indicated last week that Athens will miss its 4 percentage points targets for reducing last year's 12.7 deficit without more spending cuts totaling 4.8 billion euros.

Some of the additional cost-cutting measures which inspectors have suggested include further raising the retirement age from 65 to 67, freezing public sector wages for 2012, increasing taxes and cutting out an Easter bonus.

The southern Mediterranean country will have until March 16 to convince fellow EU members that its austerity programme would solve the problems.

German Chancellor Angela Merkel called on Sunday for Greece to fix its fiscal problems and admitted that the common euro currency was facing its worst test ever from the Greek crisis.

Papandreou is due in Berlin this Friday to meet with Merkel after days of friction, played our between the Greek and German media over whose responsibility it is to act.

Greek government spokesperson Giorgos Petalotis, on a visit to Germany, appealed for 'political and moral support' from berlin to beat the fiscal crisis.

He said Greek government bonds were now weighed down by a risk margin two to three times as high as that Germany usually paid, adding to Athens' difficulties. 'Greece going bankrupt would be a terrible blow to the eurozone,' he warned.

The spokesperson insisted Greece was not seeking financial aid or a debt write-off from other European Union nations in order to overcome its budget woes.

'Greece will be paying back its debt,' Petalotis said. 'Nobody is expecting a single EU taxpayer to chip in for Greece's debts.'