EU insists on Greek austerity plans

Greece was struggling to form a unity government tonight as EU countries insisted austerity remained the basis of the country’s economic revival.

Eurozone finance ministers meeting in Brussels had one eye on Athens where last-ditch talks were under way between political parties to stitch together an emergency administration to run the country.

But the European Commission warned that any Greek administration will have to honour the austerity policy agreed as part of multibillion-pound EU-IMF bail-out packages to keep Greece afloat.

The uncertainty hit markets, with nervous traders wiping £28.5bn (€35.4bn) from the value of London’s leading shares index.

With little sign of a political deal in Athens, the prospect of another election rose – and with it the prospect of a result likely to reinforce public rejection of the austerity package which has severely hit jobs and incomes.

The European Commission insisted the austerity plan remained the best option.

A spokesman said: “This is the best thing for Greece for the Greek people and for Europe as a whole” said a spokeswoman. “Nothing has changed in our position – we want Greece to stay in the euro, we think the Greek (austerity) programme is the best course for Greece and, while we respect the on-going efforts in Greece (to form a government), we say that Greece must honour its (austerity) commitments.”

The Spanish government, now struggling with its own economic crisis and likely to need a massive EU bail-out, urged Greek politicians to resolve their differences and stick to the austerity path to avoid further economic “contagion”.

The scale of the crisis raises the real prospect of Greece leaving the eurozone - possibly with further bail-outs for Athens involving all 27 member states.

The Brussels talks between eurozone finance ministers are unlikely to reach decisions on the next steps, but the 17 are to be joined tomorrow by the rest of the non-eurozone ministers for another assessment of the state of play.

And despite pressure from new French President Francois Hollande to ease austerity and back growth, there remains no sign that Greece’s partners are prepared to relax the terms of the bail-out deals.

However, measures to boost growth are certain to be discussed at the G8 summit at Camp David in the USA on Friday.