Greece must not expect EU bailout: ECB

(ATHENS) - Greece, threatened by massive overspending, must not expect an EU bailout, the European Central Bank warned on Wednesday as an EU mission to Athens prepared to scrutinise a crisis budget.

"Greece's problems are decidedly Greek, as Prime Minister George Papandreou has himself admitted," ECB chief economist Juergen Stark told the Italian financial daily Il Sole 24 Ore in Rome.

"The markets are fooling themselves if they think that at some point the other EU member states will put their hands in their pockets to save Greece."

He spoke as officials from the ECB and from the European Commission began a mission in Athens to examine with Greek officials a crisis programme to stabilise national Greek finances. Greece is a member of the eurozone.

The beleaguered Greek government which has described the overspending as a threat to the nation, is to submit its crisis measures to the EU Commission by the end of January.

And on Tuesday, the day before the EU mission was to begin work, the government revealed a radical shortening, by a year, of its timetable for correcting public finances.

Stark's repetition of the ECB's rejection of a bailout helped firm the euro against the dollar, with the European single currency firming to 1.4373 dollars from as low as 1.4284.

Commenting on Stark's comments, economist Alan McQuaid at Bloxham stockbrokers in Dublin, said: "Although the ECB is talking tough on Greece's budget woes, no-one seems to believe them at this juncture."

But he also remarked that "if the ECB is not bluffing" and stopped accepting Greek government bonds as collateral for refinancing Greek banks when special relaxed criteria run out at the end of the year, "it could spark a chain reaction which could quickly threaten to destabilise the whole region and make a bailout inevitable, even if not involving the ECB directly."

McQuaid said: "The key questions for investors, rating agencies and Greece's EU partners will be whether the plan's set of policy initiatives contains enough structural cost-cutting measures to be deemed feasible and convincing."

He said that the Greek government's initial outline of action "failed to impress markets" which were looking for "detailed, long-term cuts in public spending, including pension reforms."

Greece's deficit, the difference between spending on central, welfare and local government budgets and revenues, is estimated to be 12.7 percent of gross domestic product.

A Greek finance ministry source said on Tuesday that Athens had reduced by a year its timetable for reducing its public deficit to the maximum ceiling permitted under the Stability and Growth Pact of 3.0 percent of GDP.

This would now be achieved within three years, and implies a sharply tougher twist of an already tough promise to correct public finances.

"We are conscious of the difficulties, the entire population has to help... but I am optimistic," Papandreou told reporters in Athens on Wednesday. He added that "2010 will be a year of big changes."

Late last month Greece was hit by a financial crisis which has fuelled debate in financial circles about the cohesion of the 16-nation eurozone.

Credit rating agencies downgraded their ratings of Greek debt, the price of government debt bonds used to finance the debt fell and the interest demanded by lenders rose sharply.

In addition, the ECB, which manages eurozone monetary policy, and the European Commission put intense pressure on Greece to produce a revised budget and restore national credibility on financial markets.

"Participation in the Monetary Union doesn't confer any right for a member state to demand financial support," Stark said.

"These past few years (Greece) has not kept its public accounts under control or worked to improve its competitivity," he said.

"These problems are not tied to the global crisis, but are homegrown, and must be addressed with appropriate economic measures," he added.