EU in fresh warning to Greece on deficit

OUTGOING EU economics commissioner Joaquin Almunia has warned that Greece will have to adopt new austerity measures if it fails to meet targets set out in an already tough emergency budget.

Mr Almunia said the budget programme was achievable but prone to risk. By mid-March, Greece will have to submit its first special report to Brussels on the implementation of the measures, with a follow-up due in mid-May.

The European Commission casts judgment tomorrow on the plan, which was introduced by prime minister George Papandreou in the face of extraordinary pressure from financial markets and the European authorities.

Scrutiny of Greece has increased the cost of its public debt, adding pressure on other debt-dependent euro members, Ireland among them.

“We will not accept slippages on the path to the targets,” Mr Almunia said. “Every time we see slippages, because some risks materialise, we will ask for additional measures to correct these slippages.”

While setting a new deadline for Greece to bring its budget deficit to heel, the commission is set to intensify its surveillance of the country’s finances and statistical service.

The EU executive is also expected to hand down a formal warning to Greece for running dangerous policies.

While officials say the EU would not abandon the country if it required last-resort assistance, Mr Papandreou’s socialist administration is under pressure to find an internal resolution to the fiscal problems.

Athens stunned the authorities in Brussels last October when it revealed, weeks after coming to power, that the 2009 deficit was likely to come in 12.7 per cent, more than twice the previous estimate.

“What we are saying to the Greek authorities is, your stability programme has established ambitious targets and objectives and we fully endorse these ambitious objectives,” Mr Almunia said.

“We consider that the achievement of these objectives in the coming three years, before the end of 2012, is absolutely necessary. These objectives are achievable but they are surrounded by risks.”

The commission’s prior deadline for the achievement of a deficit within the 3 per cent limit set out in the EU rulebook was 2010.

The budget measures include tax rises, a freeze on public sector wages in excess of €2,000 a month and a recruitment slowdown.

Mr Almunia said the commission “fully endorsed” Greece’s objectives.

The rescue plan includes cuts in welfare spending, improved tax collection and a reduction in special allowances that make up a large portion of Greek civil servants’ overall income.