European Union leaders issued a statement on Thursday saying Greece had to do everything it could to reduce its budget gap of 12.7% of GDP to below the EU ceiling of three percent in 2012, including a four percentage point cut this year.
But leaders also said the euro zone would take determined and coordinated action, if needed, to safeguard financial stability in the euro area as a whole, sending a signal to markets that they would not let Greece default on its debt. Yet they did not specify what the euro zone could do to support Greece if needed, which disappointed markets.
Speaking on French TV yesterday evening (14 February), European Central Bank President Jean-Claude Trichet called on Greece "to take the extra measures that will be necessary to make credible the turnaround plan".
But Greece wants to postpone any decision on further measures until mid-March, when officials from the European Union, European Central Bank (ECB) and the International Monetary Fund are due to carry out a forensic inspection of Greece's deficit-cutting programme.
"The key thing in the statement from the leaders is that Greece must do what it must do. If they do that, there will be no need for specific measures," one source involved in preparing the Eurogroup meeting told Reuters.
"If they don't do that, there will be a show of determined and coordinated action, which is unspecified as yet," it said.
Such measures will not be discussed on Monday because it would be too early, several eurozone sources said.
"The ministers are very reluctant to define anything ex-ante. When there is a problem, they will sit down and hammer it out in 30 minutes," a second eurozone source said.
Eurogroup Chairman Jean-Claude Juncker told the German Sueddeutsche Zeitung newspaper in an interview on Saturday there were instruments available for an intervention that could be used when necessary, but he would not name any at this stage.
EU finance ministers this week will endorse the Greek deficit cutting plan which has already been approved by the European Commission.
They will also step up the 27-nation bloc's disciplinary budget procedure against Athens to the last stage before sanctions. If Athens does not take the action recommended by the ministers to cut the deficit over the next four months, the EU could fine it.
"There will be more pressure on Greece to deliver rather than more work in preparing the euro zone for a scenario that Greece fails to deliver," the first euro zone sourced said.
Sharp upward revisions to Greek deficit and debt figures last year led to ratings downgrades and sent yields soaring, denting investors' confidence in the country's ability to service its huge debt of more than 120% of GDP.
Greece has responded with a plan to cut its budget deficit below three percent by 2012 through various measures, including wage cuts and tax and pension reforms. But this sparked strikes from trade unions, showing how politically difficult the plan was.
The growing market concern over Greece spilled over to other high-deficit eurozone countries like Spain and Portugal, which also have to borrow at a higher cost as a result.
Yet a poll published on Sunday showed that there was little political backing for a potential eurozone bailout of Greece.
The Emnid poll for Bild am Sonntag newspaper showed 53% of Germans said Greece should be thrown out of the euro zone if necessary and more than two-thirds opposed handing Athens billions of euros in credit.
(EurActiv with Reuters.)
