Greece has been warned by a top European Central Bank policymaker that it has a year to bring public finances back under control or risk having its bonds disqualified for use as collateral by banks borrowing ECB liquidity.

The comments by Axel Weber, Germany’s Bundesbank president, intensify the pressure on the new Socialist government in Athens following revelations that its budget is in a far worse shape than previously feared.

This further blow to the eurozone country came as some of its currency bloc partners, both large and small, felt the full force of the recession. Ireland unveiledits harshest budget in years to try and bring spending under control. Spain, one of the largest economies in the eurozone, had its ratings outlook changed to negative by Standard & Poor’s.

On Tuesday, Fitch cut its rating on Greek debt to BBB plus – the first time in 10 years that a leading ratings agency has rated Greece below the A grade. Standard & Poor’s has also warned that a downgrade is possible.

Prior to the global economic crisis an A minus grade was the minimum requirement for assets put up by eurozone banks when taking part in ECB liquidity boosting operations. The threshold was reduced to BBB minus after the collapse of Lehman Brothers last year threatened to paralyse financial markets, but so far the ECB has only said that the lower standard will apply until the end of 2010.

Speaking to the international club of business journalists in Frankfurt, Mr Weber noted the temporary arrangements “will run out” and added that “the Greek government and those who hold responsibility see the clear need to implement now concrete [fiscal] consolidation steps”.

Mr Weber, an ECB governing council member, was unclear, however, whether the ECB would ever make good any threat to exclude bonds from a eurozone government in its liquidity operations – a step which would be seen as highly-political. Mr Weber assumed Greece would act in response to the pressures being imposed by financial markets and ratings agencies. “The ball lies in Greece’s court,” he said.

European Union authorities are keen to keep up the pressure on Athens to step up efforts to reduce its deficit, which is expected to reach almost 13 per cent of gross domestic product this year.

In February, Germany’s finance ministry hinted that in the worst case, help could be made available to struggling eurozone countries. But that reassurance has not been repeated more recently, fuelling speculation that if Greece eventually faced the threat of default, it would be forced into the hands of the International Monetary Fund.

However, Mr Weber expressed confidence that the EU had the means to force the Greek government to bring its deficit back in line with the region’s “stability and growth pact” – which is supposed to compensate for the lack of a single fiscal authority in the 16-country eurozone. The pact sets a limit of a three percent for public sector deficits.

“Within the stability and growth pact there is no role for the IMF – rightly,” said Mr Weber.

European finance ministers have started proceedings that could eventually result in Greece facing sanctions for repeatedly flouting the stability and growth pact. Frustration with Greece escalated because of the unreliably of its statistics. Earlier this year, the European Commission expected a deficit for 2009 that was above the 3 per cent limit but in November, it had to revise its projections to show a deficit of 12.7 per cent. Greek government debt is expected this year to exceed 112 per cent of GDP.

Meanwhile, its current account deficit reached almost 15 per cent of GDP last year, although it is expected to fall below 9 per cent in 2009.

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