REFILE-EU expected to give Greece until 2012 to slash deficit

(Refiles to add EU Commissioner Almunia’s full name and title in
5th paragraph)

* EU Commission expected to endorse Greek deficit plans

* Markets keep close watch for sign of Greek backsliding

By Jan Strupczewski

BRUSSELS, Feb 2 (BestGrowthStock) – The European Commission will
endorse on Wednesday a Greek plan to cut its budget deficit
below the EU ceiling of 3 percent of GDP by the end of 2012 and
introduce reforms to keep public finances stable.

The Commission’s assessment will be closely watched by
financial markets as they weigh Greece’s credibility as a
debtor. Sharp upward revisions to Greek deficit and debt figures
last year led to ratings downgrades and sent yields soaring.

The Commission’s much-anticipated assessment is likely to be
in line with what Greece itself has promised to do in its
long-term deficit cutting plan, which forecasts a deficit of 2.8
percent in 2012, down from 12.7 percent in 2009.

For the full Greek plan see: http://link.reuters.com/kuh37h

“What we are saying to the Greek authorities is: your
stability programme has established ambitious targets and
objectives and we fully endorse these ambitious objectives,” EU
Economic and Monetary Affairs Commissioner Joaquin Almunia told
Reuters on Monday, giving cautious approval.

The Commission, the EU’s executive arm, will formally
present its recommendations on Wednesday and they will then be
sent for the approval of EU finance ministers on Feb 15-16.

“We consider that the achievement of these objectives in the
coming three years, before the end of 2012, is absolutely
necessary,” Almunia told Reuters. “These objectives are
achievable but they are surrounded by risks.”
^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ ((For an Interactive Factbox on Greece and its economy
please click on http://link.reuters.com/kut84h))
^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ Whether the Greek programme works has become a measure for
stability across the European Union and especially the 16
countries that use the 10-year-old euro single currency.

Any sense that Greece’s recovery programme isn’t going to
work or that Athens needs rescuing by other euro zone members
will put more pressure on Greek finances and could lead to
problems in other euro zone countries with large deficits.

Almunia said Wednesday’s Commission assessment would ask
Athens to implement all the measures it has already outlined in
its stability prograamme, including spending cuts, revenue
increases and structural reforms to labour markets.

The Commission is also likely to raise doubts about Greek
growth forecasts, an EU source said. If growth turns out to be
lower than expected, the Commission could ask Greece for
additional measures to compensate for the shortfall.

POPULAR BACKLASH?

Greece has been pounded by financial markets since revealing
its 2009 budget deficit was more than four times the EU ceiling.
Investors were also alarmed by Commission findings that Greek
statistics were unreliable and prone to political influence.

The premium investors demand for holding Greek debt rather
than more reliable German Bunds hit a lifetime high of around
400 basis points last Thursday, leading to fears of a spillover
that could engulf countries such as Spain and Portugal.

In an effort to get its financial house in order, Greece has
made a serious of promises, including plans to cut public sector
wages, impose a public-sector hiring freeze, change the tax
scale and fight tax evasion. But there is a reluctance in some
parts of the Socialist government to implement all the measures,
fearing a popular backlash. Strikes are already planned.

A draft bill on the new tax system is expected to be
presented this month and is likely include higher taxes on real
estate transactions among other things, but no VAT hike.

Greece also plans a pension system reform because it is the
EU country whose public finances are most at risk form an ageing
population. Unless it changes the current system, it could be
spending a quarter of its GDP on pensions by 2060.

As well as its assessment of Greece’s plans, the Commission
will also on Wednesday issue a warning to Greece about its
policies in areas other than budget reform, using powers given
to it by the EU’s Lisbon reform treaty for the first time.

Warnings can be issued to countries whose economic policies
are not consistent with EU guidelines, or countries which risk
jeopardising the proper functioning of the euro zone.

The Commission will launch infringement proceedings against
Greece for sending false statistics and later also demand
auditing powers for the EU statistics office Eurostat to be able
to check the accuracy of such data in the future.

Stock Today

(Additional reporting by Ilona Wissenbach in Brussels and Dina
Kyriakidou in Athens)
(Reporting by Jan Strupczewski, editing by Luke Baker and Andy
Bruce)

REFILE-EU expected to give Greece until 2012 to slash deficit