EU finance chief in Athens for talks on Greece’s austerity plan amid reports of rescue package

EU, Greece discuss more cuts amid bailout reports

ATHENS, Greece — The EU’s financial affairs chief pressed Greece hard Monday to make more painful, permanent budget cuts soon, as markets speculated that the bloc or heavyweights France and Germany are preparing a financial lifeline to get the country out of its debt crisis.

Finance Commissioner Olli Rehn insisted in Athens that additional measures were necessary “in the coming days,” a view he said was shared by the European Central Bank and the International Monetary Fund.

Rehn said it was up to the Greek government to announce specific spending cuts, which he said must be permanent and structural. But he refused to be drawn on a possible bailout, saying that the bloc “has the ways and means to secure stability in the eurozone.”

“I am aware that the effort of consolidation will not be easy,” Rehn said earlier after talks with Finance Minister George Papaconstantinou. “But it is my firm belief respect of the targets for deficit and debt reduction is indispensable.”

Papaconstantinou said the center-left government will do “whatever is necessary — and that includes new measures” to cut the budget deficit by a massive four percentage points this year.

Shortly after that meeting dozens of demonstrators tried to force their way into the Labor Ministry building, where Rehn was seeing Minister Andreas Loverdos, but were repelled by riot police with pepper spray. There were no reports of arrests or injuries.

About 150 left-wing protesters gathered outside the ministry building, with banners reading “We will become their crisis.”

Christos Matos, who was handing out fliers to passing motorists, said the government should not make further salary and pension cuts.

“We are already two notches below the rest of Europe in that aspect, and with further cuts people will not be able to make ends meet,” he said. “Let (the government) cut military spending instead.”

Rehn also discussed the austerity program with Prime Minister George Papandreou and other senior officials.

The talks came amid reports that officials in fellow European countries are preparing a financial lifeline for Greece, to be finalized this week. A Greek default would be a severe blow to the shared euro currency and could hurt European banks that have bought Greek government bonds.

The Wall Street Journal reported that state-owned banks and bond investors in France and Germany could buy as much as euro30 billion ($41 billion) in Greek bonds to calm market fears of a default. It cited anonymous sources familiar with the situation.

This could help the country meet its short-term debt needs, as some euro20 billion ($27 billion) worth of government bonds mature by the end of May. Greece plans to borrow some euro54 billion through sovereign debt issues this year, and has so far raised around euro13 billion.

In a television interview Sunday, French Finance Minister Christine Lagarde said she was confident Greece would manage to successfully refinance “via the means that we are now studying … involving private partners, public partners, or both.”

She did not provide further details.

“Greece will not be left in the lurch … on condition of course that it respects the engagements it took vis-a-vis its European partners in its stabilization plan,” she said.

Although German Chancellor Angela Merkel did not explicitly rule out the reported rescue measures, she denied any taxpayer money would be spent on Greece: “We have a treaty which rules out the possibility of bailing out other nations,” Merkel told German broadcaster ARD in an interview Sunday night.

Papandreou is due to see Merkel in Berlin on Friday, and will fly to Washington March 9 for talks with U.S. President Barack Obama.

On Monday, he pledged again to pull Greece through its worst postwar economic slump and appealed for ordinary Greeks to back the effort.

“It is extremely urgent for us to address the dramatic fiscal problem, because it is threatening to strip us of any ability to determine our own fate,” Papandreou told a cabinet meeting. “And we will do so. We will not allow Greece to slide further, or finally sink.

“We are asking Greeks today to join in the common effort to save our country. And the overwhelming majority is prepared to do so.”

Under intense EU pressure to show tangible fiscal progress or tighten the belt more, Greek officials have pledged to take further action if needed but are balking at additional cuts to the salaries of the country’s estimated 750,000 public sector workers.

Greece shocked its EU partners and global markets last year, abruptly revising its budget overspending figures to 12.7 percent of annual economic output — over four times the EU limit and up from an initial estimate of under 4 percent of GDP. The country’s woes undermined confidence in the common European currency and sent Greece’s borrowing costs to crippling heights.

The spread between Greek 10-year bonds and equivalent German issues — a key indicator of market trust — narrowed to 314.7 basis points Monday from around 340 Friday, but remain at a high level.

Greek stocks rallied strongly on hopes of a rescue, with the benchmark general index closing 2.94 percent up.

The EU has given Athens until March 16 to show progress with its pledge to cut the deficit by four percent of GDP this year, gradually bringing it to under 3 percent in 2012.

The government, which came to power five months ago, has announced a freeze on public sector salaries and hiring, while raising consumer taxes and retirement ages.

However, a team of EU, ECB and IMF inspectors last week urged further cuts. Labor Minister Andreas Loverdos said Brussels was looking for an extra reduction in outlays of about euro1.4 billion ($1.9 billion), denying press reports the figure was closer to euro5 billion.

On Tuesday, parliament is expected to approve draft legislation to improve data reporting transparency and make the national statistics service independent of government intervention. The reforms follow years of unreliable accounting practices, which contributed to the abrupt revision in Greece’s deficit figures and drew blistering criticism from Brussels.

AP writers Greg Keller in Paris, Matt Moore in Berlin and Derek Gatopoulos in Athens contributed to this story