Eurozone ministers tell Greece to get ready to cut, tax

BRUSSELS, Belgium — European finance ministers bluntly told Greece to prepare tougher spending cuts and new taxes in an attempt to snuff out a government debt crisis that has shaken the entire eurozone.

Greece's Finance Minister Giorgos Papaconstantinou

Greece's Finance Minister Giorgos Papaconstantinou

BRUSSELS, Belgium — European finance ministers bluntly told Greece to prepare tougher spending cuts and new taxes in an attempt to snuff out a government debt crisis that has shaken the entire eurozone.

The 16 countries that use the euro warned Greece on Monday that it will need to take the extra measures if current cutbacks don’t bring its massive deficit down — from a staggering 12.7 per cent of economic output to a still-high 8.7 per cent this year.

Greece has until March 16 to report back on its progress.

It was already under pressure for falsifying statistics for years to make its deficits look lower and is now under added scrutiny for using complex financial deals to mask debt going back to 2001.

Eurozone nations have pledged to help Greece if it can’t repay its debts — but want Greece to make big spending cuts first. They are taking action because fears of a Greek default could spark a wider European debt crisis, threatening governments ability to borrow money.

“It’s clear that we are all in this together. We won’t abandon Greece,” said French Finance Minister Christine Lagarde — who would likely lead a potential bailout along with Germany.

“Greece has to actually deliver and is beginning to deliver. Greece has to demonstrate on a day to day basis .. that it is committed to do what it takes,” she told reporters.

Luxembourg Prime Minister Jean-Claude Juncker, who led the Monday talks, said Greece has agreed to take further action if it looks like it can’t hit the target.

“On March 16 we will check to see whether Greece is achieving the targets it has set for itself,” he said.

If it isn’t on course, eurozone finance ministers — except Greece — would then vote on whether tougher action was needed and “would impose on Greece” extra measures, he said.

The details of new spending cuts would be agreed with the European Commission and would focus on raising value-added tax and energy taxes, setting new excise duties on luxury goods — including private cars — and new cuts to capital expenditure.

Juncker said Greece’s debt crisis was “first and foremost a Greek problem and an internal Greek problem” and that he believed its program to reduce debt was “feasible.”

But if Greece’s budget plans and extra action does not slash the budget deficit, he said the eurozone would step in and “will take determined and co-ordinated measures to safeguard the stability of the eurozone as a whole,” he said, repeating a statement from EU leaders last week.

He refused to give details about how the eurozone would come to Greece’s financial rescue if it comes to that. European leaders also omitted details when they made the statement last week, though it appears to have partly calmed market fears — for the moment.

“We do not feel it would be wise to have a public discussion of such instruments, but if those instruments are called for, then you can take it that we will have those instruments,” he told reporters.

Greek Finance Minister George Papaconstantinou called Monday on eurozone nations to say how a bailout would work, saying this would “stop markets from attacking Greece.”

Market worries of a default have hiked the cost of Greek government borrowing in recent months and caused the euro to slide to a near nine-month low against the dollar.

Lagarde said the eurozone is now in “crisis management” mode and that the International Monetary Fund and the European Central Bank would join the European Commission in checking on Greece to make sure “that things are going in the right direction.”

Greece says it isn’t asking for financial help and won’t need any — but it is facing a credibility crisis as the European Commission asks it to explain by the end of February how it used complex financial deals, called currency swaps, since 2001 that allegedly made its debt limits look lower.

A Feb. 1 report commissioned by the Greek finance ministry also warned of “significant debt revisions” for 2009 statistics due to swaps, debt to suppliers and state-guaranteed loans that may default.

It said some swaps are now “being done in order to transfer interest from the current year to the future, with long-term loss to the Greek state.”

EU spokesman Amadeu Altafaj Tardio said such swaps weren’t illegal unless the Greece was not using market rates to calculate the exchange rates used for the swaps. Greece never told the EU that it was using the swaps to mask debt, he said.

Papaconstantinou said some of the derivative contracts used in the past “were at the time legal” and that Greece is not using them now.

“We do want to restore credibility,” he said. “We have enough trouble as it is convincing people that our numbers are real.”

Greek finance ministry officials, speaking on condition of anonymity, told the Associated Press on Sunday that the government has met with most major international banks over the last months “to explore options and discuss their involvement in financing Greek national debt.”

They said any financing would be transparent and in line with EU statistics rules.

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Associated Press writers Emma Vandore in Brussels and Demetris Nellas and Elena Becatoros in Athens contributed to this story.