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February 14, 2010 8:49 pm
Greece is expected on Monday to resist pressure for an immediate tightening of its current austerity package as it fights to win back the confidence of international financial markets and its eurozone neighbours.
Both Germany and the European Central Bank have been pushing Athens to strengthen its existing fiscal stability plan by adding measures such as a 1 to 2 per cent increase in value-added tax and further public sector wage cuts in return for financial assistance.
In an appearance on French television on Sunday night Jean-Claude Trichet, the ECB president, called on Greece “to take the extra measures that will be necessary to make credible their turnaround plan”.
But Athens is fighting to postpone any decision on further measures until mid-March, when officials from the European Union, ECB and International Monetary Fund are due to carry out a forensic inspection of Greece’s deficit-cutting plans.
“It makes no sense to rush into additional measures until they are seen to be necessary,” said a senior Greek official.
Eurozone finance ministers are due on Monday to consider whether Greece needs to do more to achieve this year’s target of reducing its deficit from 12.7 to 8.7 per cent of gross domestic product. Greece maintains that additional measures announced this month – a fuel tax increase and an extra 1 percentage point cut in public sector pay – are adequate to meet the deficit target.
French officials said any announcement of fresh measures was unlikely on Monday.
Analysts remain sceptical that Greece’s current plans will go far enough, especially after figures last week showed the economy contracted by about 2 per cent in 2009 against an earlier projection of 1.2 per cent. “It’s hard to see how Greece can avoid a further tightening of fiscal policy,” a senior Athens banker said on Sunday.
French and German officials said they were willing to wait until the result of the mid-March mission. But the ECB is arguing for Athens to take further steps to boost tax revenues or cut spending.
The ECB has been anxious to safeguard the eurozone’s “no bail-out” clause but last week Mr Trichet backed eurozone leaders’ pledge “to take determined and co-ordinated action, if needed, to safeguard financial stability in the euro area”. That suggested he believed ways could be found by which, in an extreme case, Greece could be helped without taxpayers’ money from one country being used to help those in another.
Additional reporting by Ralph Atkins in Frankfurt and David Oakley in London
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