Greece urged to get tough over debts

Greece was urged today to do more to restore its crisis-hit economy if it wants to qualify for a bail-out from other EU countries.

EU Economic and Monetary Affairs Commissioner Ollie Rehn, visiting Athens, held out the prospect of support from other euro-zone member states if necessary.

But he also made clear that tougher austerity measures by the Greek government could be enough to enable the country to re-finance its own huge debts without outside help.

An EU summit last month agreed to bail out Greece “if needed”, but demanded tougher government reforms in Athens to restore economic stability and calm world markets anticipating a single currency collapse.

The scale of the problem has raised international fears that Greece cannot pay its debts and that investors will avoid the euro.

With single currency credibility at stake, Greece has been given until March 16 to do more to raise taxes and cut public costs than so far on offer.

Greek finance minister Georges Papaconstantinou has already announced some tax rises and big job and pay cuts in the public sector.

Greece has not officially requested a bail-out and still insists that talk of Greek bankruptcy is “completely absurd”.

But EU leaders are not so sure, with France and Germany said to be ready with a bail-out if needed.

First Mr Rehn will report back to the Commission on Greek cost-cutting measures, and Greek Prime Minister George Papandreou will go to Berlin on Friday for talks with Chancellor Merkel – whose official stance remains that Greece must resolve its own economic problems.

Greek has promised to get its massive deficit of nearly 13% of GDP down to the 3% maximum allowed under EU single currency stability rules by 2012. It has also accepted an EU requirement to achieve a 4% reduction by the end of this year.

The austerity measures designed to start the uphill climb to solvency include a new pensions system, and taxes on fuel and tobacco.

A rise in VAT is also now on the cards to bolster the Greek economic “report card” due to be considered by EU officials on March 16.

Meanwhile non-single currency member states, including the UK, are taking a back seat, insisting this is a crisis for the 16 countries in the “euro-zone” to sort out.

Any bail-out would be reluctant, and led by Germany and France, probably in the form of debt guarantees to enable Greece to refinance its debt commitments.