Sunday, February 28, 2010

No German rescue plan for debt-ridden Greece


Chancellor Angela Merkel Sunday dismissed talk of a German rescue plan for Greece's ailing economy, as Athens braced for an EU audit that could usher in new austerity cuts to tackle its massive debt crisis.

Greek bond prices rallied this week on a report that Europe's top economy was considering coming to the aid of debt-burdened Greece, as Prime Minister George Papandreou prepares to hold talks with Merkel in Berlin on Friday.

But the German chancellor denied any such plan was in the works, saying "there is absolutely no question of it".

"We have a (European) treaty under which there is no possibility of paying to bail out states in difficulty," Merkel told ARD public television.

Germany has repeatedly denied talk of a bail-out for Greece, further fuelled this week by a meeting between Papandreou and the head of Deutsche Bank.

"Right now we can help Greece by stating clearly that it has to fulfil its duties," said Merkel, adding that Greece had to "show great courage" in order to resorb its deficits and restore its "lost credibility".

Greece's Socialist government has pledged to cut the deficit by four percentage points of gross domestic product to 8.7 percent this year, but there are doubts that the recession-hit country will be able to meet this goal.

Merkel warned Athens now had to "set this decision in motion", as she acknowledged that the current crisis was "certainly the most difficult period" since the euro was created in 1999.

"I hope the markets will trust in the efforts deployed by Greece," she said.

The chancellor also ruled out providing support to Greece in the form of state guarantees to the banking sector, arguing that it would amount to aid.

Greek press reports had said Germany planned to help through the purchase of Greek bonds via its state lender KfW. A new 10-year bond issue had been expected for weeks.

Greece is expected this week to announce new measures to limit state spending, which could include bolder benefit cuts and a two-percent hike in sales tax according to reports.

The measures are set to coincide with the arrival of the European Union's economic and monetary affairs commissioner Olli Rehn in Athens on Monday.

Papandreou has said he will use the debt crisis to remedy chronic waste in public administration.

But if the programme proves insufficient, a meeting of EU finance ministers could demand even harsher corrective action at a meeting on March 16.

The head of the group of ministers that oversee the eurozone warned Sunday that Greece must step up its spending cuts and not expect Europe to pick up the bill for its past mismanagement.

"Greece must understand that taxpayers in Germany, Belgium or Luxembourg are not prepared to correct Greek fiscal policy mistakes," warned the eurozone chief, Luxembourg Prime Minister Jean-Claude Juncker.

Mired in recession and requiring more than 50 billion euros (68 billion US dollars) in loans this year, Greece needs to bolster falling market ratings that have steeply pushed up its borrowing costs.

Greek government overspending reached 12.7 percent of output in 2009 as the global downturn sent public deficits through the roof, putting government bonds under pressure, weakening the euro and pushing the eurozone into crisis.

The euro has slipped considerably against the dollar, trading on Friday at around 1.36 US dollars compared to 1.45 US dollars in December, and last week plunged to a one-year low against the yen link http://news.smh.com.au

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