THE European Commission is today set to endorse a Greek plan to cut its budget deficit below the European Union ceiling of three per cent of GDP by the end of 2012, saying it is feasible despite risks.
The Commission’s assessment will be closely watched by financial markets as they weigh Greece’s credibility as a debtor. Financial markets have hammered Greece for weeks, driving the premium demanded for holding its debt rather than German bunds to a euro lifetime high of around 405 basis points last week, on fears over the country’s budget hole and debt load.
“The Commission has assessed the programme. The envisaged correction of the deficit is feasible but subject to risks,” Commission President Jose Manuel Barroso said yesterday.
“Provided such risks will not be allowed to materialise through the timely implementation of corrective measures the deficit will indeed be corrected. We believe this will be done. The Greek government is committed to take such measures,” he said.
Greece’s financial problems have sparked talk about a possible bailout by the EU and fears about the stability of the 16-country euro area if markets’ doubts about Greece spill over to other eurozone countries with large deficits.
“Indeed, a successful correction of its very excessive deficit is not only important for Greece but for the euro area and the EU as a whole,” Barroso said.
The Commission’s much-anticipated recommendations on what Greece should do are likely to be in line with what Athens has promised in its long-term austerity plan, which forecasts a gap of 2.8 per cent in 2012, down from 12.7 per cent in 2009.
The Commission, the EU’s executive arm, will formally present its recommendations today and they will then be sent for the approval of EU finance ministers on February 15-16.
“The achievement of these objectives in the coming three years, is absolutely necessary,” Economic and Monetary Affairs commissioner Joaquin Almunia said on Monday.
City A.M. Reporter