UPDATE 1-EU to endorse Greek deficit cutting plan Wed

* EU Commission to endorse Greek deficit plans

* Markets keep close watch for sign of Greek backsliding

(Adds Barroso statement on Greece)

By Jan Strupczewski and Marcin Grajewski

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,
saying it was feasible despite risks.

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 has assessed the program. The envisaged
correction of the deficit is feasible but subject to risks,”
Commission President Jose Manuel Barroso said in a statement.

“Provided such risks will not be allowed to materialise
through the timely implementation of corrective measures the
deficit will indeed be corrected. We believe this will be done.
The Greek government is committed to take such measures,” he
said.

Greece’s financial problems have sparked talk about a
possible bailout by the EU and fears about the stability of the
16-country euro area if markets’ doubts about Greece spill over
to other euro zone countries with large deficits.

“Indeed, a successful correction of its very excessive
deficit is not only important for Greece but for the euro area
and the EU as a whole,” Barroso said.

The Commission’s much-anticipated recommendations on what
Greece should do are likely to be in line with what Athens has
promised in its long-term austerity plan, which forecasts a gap
of 2.8 percent in 2012, down from 12.7 percent in 2009.

For the full Greek plan see:
http://ec.europa.eu/economy_finance/sgp/pdf/20_scps/2009-10/01_programme/el_2010-01-15_sp_en.pdf

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,” Economic and Monetary Affairs Commissioner Joaquin
Almunia told Reuters on Monday.

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.

In its assessment of the Greek plan, the Commission is
likely to raise doubts about 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 Market Research Tools

(Additional reporting by Marcin Grajewski and Ilona
Wissenbach in Brussels and Dina Kyriakidou in Athens)
(Reporting by Jan Strupczewski, editing by)

UPDATE 1-EU to endorse Greek deficit cutting plan Wed