By Simon Kennedy and Jonathan Stearns March 2 (Bloomberg) — The European Union set the clock ticking on Greece’s attempts to cut the bloc’s largest budget deficit. As Prime Minister George Papandreou prepares to meet Germany’s Angela Merkel on March 5, EU Monetary Affairs Commissioner Olli Rehn yesterday said Greece must reveal new measures “in the coming days” to allay officials’ concerns that the current austerity plan falls short. Merkel and other EU leaders want Greece to do more so they can justify any aid package to taxpayers and political opponents who say that Greece shouldn’t be bailed out after living beyond its means. Failure to satisfy Rehn’s demand before the Berlin talks may dash hopes of a German-led lifeline, spurring investors to reverse yesterday’s rally in Greek bonds. “All the trump cards are with Berlin this week,” said Julian Callow , chief European economist at Barclays Capital in London. “Clearly Greece has a huge financing need in the months ahead and so it will have to do more” before the Merkel meeting. Papandreou addresses his governing Pasok party at 5 p.m. local time today and the cabinet meets tomorrow to discuss further “decisions on the economy,” the government said. “It is Greece’s job to do what it has announced, which is to implement the deficit reduction goal,” said Merkel yesterday. The yield on Greece’s 10-year bonds yesterday fell 9 basis points to 6.25 percent, the lowest in two weeks, as investors speculated a deal to help Greece is close. It was little changed at 8:08 a.m. in London today. Greek Options Papandreou’s efforts to give the EU what it wants are being complicated by strikes, a deteriorating economic outlook and higher borrowing costs. Options outlined by the EU include another increase in the fuel levy, raising sales tax and a luxury tax on cars and yachts. It could also raise duties on alcohol and tobacco products again and abolish the “14th wage”, a payment received twice a year that’s equivalent to one month’s wage. Labor Minister Andreas Loverdos said yesterday that Greece will extend a freeze on public-sector pay increases to pensions. “The announcement of cuts is necessary to pave the way to financial assistance,” said Nick Kounis , chief European economist at Fortis Bank Nederland NV in Amsterdam. “Everyone is being tough on Greece and now it has to outline the extra cuts and commit to them.” Bond Sale? While the head of Greece’s debt management agency said in an interview today that the country will sell bonds when market conditions are “favorable,” the government needs to cover more than 20 billion euros ($27 billion) of bonds and notes maturing in April and May. Finance Minister George Papaconstantinou said yesterday the government will “do anything” to meet its targets, which include lowering the deficit beneath the EU limit of 3 percent of gross domestic product by 2012. This year, the government wants to cut the deficit by 4 percentage points to 8.7 percent. The EU should nevertheless be wary of making Greece do too much too soon, David Mackie , chief European economist at JPMorgan Chase & Co., said in a Feb. 26 research report. He calculates that new cuts amounting to another 2 percentage points of GDP would leave the total at 7 percentage points, which is “getting to the intolerable end of the spectrum.” “It appears that the Greek government has reasonably broad support across the political spectrum and with the population as a whole,” Mackie said. “Too much pressure from the rest of the EU could change this and introduce a political crisis, the consequence of which would be hard to gauge.” Default Risk The government has already raised the retirement age and frozen salary increases for public-sector workers. The yield on Greece’s 10-year debt has stabilized after surging more than two percentage points in three months to as high as 7.15 percent at the end of January as some investors speculated the EU will do whatever is necessary to stave off a default. German lawmakers say euro-area officials are devising a plan to grant Greece about 25 billion euros in aid should the need arise. One option could involve using German state-owned lenders such as the KfW Group to buy its bonds . “We have a number of options before us, including public and public-private ones,” French Finance Minister Christine Lagarde told reporters near Paris yesterday. “All of this is on the condition that Greece meets its commitments.” To contact the reporters on this story: Jonathan Stearns in Athens at jstearns2@bloomberg.net ; Simon Kennedy in Paris at skennedy4@bloomberg.net .
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EU Puts More Pressure on Greece to Cut Budget Deficit as Merkel Talks Near
