Greece to get EU backing

George Papandreou

As Greece attempt to reduce their deficit, the European Commission will ask finance ministers to endorse the Greek measures to reduce the European's biggest budget.

Greece's Prime Minister George Papandreou has promised more action to reduce the deficit, including a freeze on state workers' pay.

"Greece is in the center of a speculative game aimed at the euro," Papandreou said in a televised speech in Athens. "It is our national duty to stop the attempts to push our country to the edge of the cliff."

Papandreou has pledged to raise fuel taxes in a move that will boost income immediately, and said an overhaul of the tax system, which will increase 2011 revenue, would be targeted at the wealthier to protect poorer Greeks. He said it is time for Greece, like other EU countries, to take "brave decisions" and raise the retirement age, Business Week reports.

No state worker will receive a wage increase this year, a reversal of a pledge Papandreou made before his October election victory. Greek unions have called on workers to join a strike already planned for 10 February to protest against the government's cuts.

The commission, the Brussels-based EU executive, has warned that Greece may need to take further steps to shore up the budget even as it prepares to support the government's program to rein in its deficit. The three-year planPapandreou outlined last month includes measures to cut spending and raise revenue by 10 billion euros this year.

Correction by 2012

The planned correction of the deficit by 2012 "s feasible but subject to risks," commission President Jose Barroso said. The commission will recommend in a report that European finance ministers endorse the Greek program at a meeting in Brussels later this month.

Papandreou has urged Greeks to support the new measures, saying the country can't afford strikes and blockades which may derail the attempt to get the economy back on track. He has sought backing in a series of meetings with political party leaders.

Greece, which had the EU's widest deficit at 12.7 percent of gross domestic product last year, has struggled to convince investors it can bring the budget shortfall within the bloc's limit of three percent. Greek 10-year bonds declined yesterday, sending the yield up 14 basis points to 6.75 percent.

"The commission will be in charge of monitoring the implementation of the program through a very intense surveillance," Barroso said yesterday. "The successful correction of its very excessive deficit is not only important for Greece, but for the euro area and the EU as a whole."

Greece's financial problems has 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 euro zone countries with large deficits.

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