Greece told to cut spending

City A.M. Reporter
The European Union yesterday urged Greece to take extra austerity measures within days to tackle a fiscal crisis that has shaken the eurozone, and promised to help Athens overcome its debt problems.

EU economic and monetary affairs commissioner Olli Rehn said after a day of talks with Greek leaders that financial markets will be convinced the country will meet its deficit-reduction targets once they see precise additional measures.

His visit elicited clear signals that Athens is preparing early extra savings measures, fuelling market expectations of a trade-off between new deficit-cutting steps and practical EU support for Greek borrowing.

“The euro area is ready to take determined and coordinated action to ensure the stability of the euro area,” Rehn told a news conference without directly commenting on possible financial backing for Greek debt, adding that “we have the ways and means to ensure financial stability”.

Prime Minister George Papandreou appeared to be preparing the nation for more sacrifices in broadcast remarks to the cabinet dramatising the crisis and appealing for public support. His labour minister proposed a freeze on pensions this year as an extra measure to contain spending. Rehn said they also discussed several ways to reduce the public sector wage bill.

Papandreou has a crucial meeting in Berlin on Friday with Chancellor Angela Merkel of Germany, which is Europe's biggest economy and holds the key to any financial support package.

Merkel, who faces strong domestic opposition to any bailout, said after talks with Spanish Prime Minister Jose Luis Rodriguez Zapatero in Hanover she believed Greece could fulfill its budget consolidation goals, and that was the best way to stop or minimise speculation against the euro.