Greece dismisses Europe ‘bailout’ in debt crisis

Athens – Greece dismissed talk of a bailout from Europe after an ambitious plan to solve the worst debt crisis in the country’s modern history failed to convince EU officials and investors.

"It hasn’t been a question of a bailout," Greek Finance Minister George Papaconstantinou said in Paris after talks with his French and German counterparts. "We haven’t discussed this with my colleagues."

EU partners thought Greece was heading "in the right direction", he added.

As part of a three-day tour aimed at salvaging Greece’s tattered economic credibility, the minister held talks with French Finance Minister Christine Lagarde and German Finance Minister Wolfgang Schaeuble.

He is also set to meet British finance minister Alistair Darling this week.

EU Economic and Monetary Affairs Commissioner Joaquin Almunia, the EU’s top economic enforcer, meanwhile urged action to fix Greece’s budgetary chaos.

The EU is awaiting "concrete measures that will strengthen fiscal adjustment in 2010 and ensure a fast consolidation of public finances," he said.

EU President Jose Manuel Barroso said Prime Minister George Papandreou was determined to resolve Greece’s problems, which have sparked concerns about the country’s credit worthiness and the wider prospects of the 16-nation eurozone.

"We believe that Greece is now taking the proper measures and that we should support Greece in the enforcement of those measures," Barroso said.

The Athens stock market lost more than 2.0 percent and the euro dropped against the dollar, reflecting investor doubts even after Papandreou on Monday outlined a plan to slash public spending to resolve the crisis.

Papandreou warned that Greece "faces the risk of sinking" under its EUR 300 billion’ worth of debt and had "lost every trace of credibility" after fresh doubts about its official statistics.

Greece’s public deficit is likely to rise to 12.7 percent of output this year — far exceeding the eurozone limit of 3.0 percent.

The country suffered a downgrade to its credit rating last week that roiled markets and raised fears for the solvency of other indebted eurozone members.

In a bid for national unity in the face of expected union opposition to spending cuts, the premier on Tuesday held what he called a "very positive" all-party meeting on fighting corruption, which eats up billions of euros.

"Corruption constitutes an important part of the lawlessness plaguing the proper exploitation of the Greek people’s money (that is necessary) to avoid this huge debt and wastage," Papandreou said after the two-hour meeting.

Analysts at Bank of America Merrill Lynch said in a note that "despite its travails, Greece is not likely to default on its debt.

"But pressure probably will remain intense until the new administration can prove to the market that it is committed to cutting public spending."

IHS economist Diego Iscaro said Papandreou’s plan "should give the government more time to build the political consensus necessary to implement the deep reforms the economy so urgently needs."

Jonathan Loynes of Capital Economics consultancy in London, however, warned that the speech "appears to have done little to convince the markets that the government is taking decisive steps to tackle its fiscal crisis."

He added: "Market nervousness over both Greece’s position and sovereign debt in general looks unlikely to fade in the foreseeable future."

On the foreign exchange market in London the euro hit a two-month low against the dollar Tuesday, which traders partially attributed to nervousness over the Greek situation and its possible impact on the 16-nation eurozone.

Papandreou’s proposals include curbs on public sector hiring and pay, a 10-percent cut in social security and a reduction in military spending.

He also called for a 90-percent tax on bonuses at banks and an overhaul of the fiscal system in measures due to come into force from early 2010.

Rating agencies have weakened Greece’s credit standing on the European government bond market, putting the spotlight on its deteriorating public finances and debt in other eurozone economies.

AFP / Expatica