EU to 'reinforce' Greece scrutiny after German control move

(BRUSSELS) - The European Commission said Saturday it will "reinforce" monitoring of Greek public finances, after Germany called on Athens to surrender budgetary sovereignty.

A Greek government minister poured scorn over the idea, saying it was the "product of a sick imagination."

Right in the thick of tough international negotiations over a second bailout for Greece, the notion was contained in a German submission to eurozone partners, revealed late on Friday by the Financial Times.

"There are discussions and proposals in the heart of the eurozone, including one from Germany" to "reinforce control over programmes and measures already in place," a European source said.

Under the radical German plan, a commissioner appointed by the other eurozone finance ministers would be able to veto budget decisions made by the Greek government.

The scheme emerged ahead of a meeting of EU leaders in Brussels on Monday focused on a new fiscal pact.

"Budget consolidation has to be put under a strict steering and control system," the Financial Times quoted the proposal as saying.

"Given the disappointing compliance so far, Greece has to accept shifting budgetary sovereignty to the European level for a certain period of time."

Said the European source: "In Greece, there is a particular problem of a very decentralised budget policy.

"A constraining legal framework could bring more coherence and ease and accelerate the decision-making.

"External expertise on the ground could be run by European institutions and could also have certain decision-making powers," the source said, requesting anonymity.

The European Commission said it was in the process of boosting existing "capacity" in Athens, but that Greece must remain sovereign.

The Commission, the European Central Bank and the International Monetary Fund make up an international troika trying to make Greece's 350-billion-euro debt mountain sustainable by 2020.

A targeted 100-billion-euro write-down by banks may not be enough.

"The Commission is committed to further reinforcing its monitoring capacity and is currently developing its capacity on the ground," said economic affairs spokesman Amadeu Altafaj.

However, he added that such key decisions "must remain the full responsibility of the Greek government."

He said the government in Athens is "accountable before its citizens and its institutions," and underlined: "That responsibility lies on their shoulders and it must remain so."

Greek Education Minister Anna Diamantopoulou, who slammed the notion as "the product of a sick imagination," is a former EU commissioner.

"There is effectively a 'non-paper' that was presented to the eurogroup," a Greek government source told AFP in comments echoed by others.

"Greece will not discuss such a possibility," the source said. "It is out of the question that we would accept it, these are matters of national sovereignty."

Such a move would "require a change in (EU) treaties."

Meanwhile Greek leaders on Saturday held more talks with private creditors on a write-down of part of the country's debt to avoid a looming default.

Prime Minister Lucas Papademos and Finance Minister Evangelos Venizelos led the 90-minute talks with Institute of International Finance (IIF) chief Charles Dallara ahead of a European summit on Monday.

The meeting followed talks lasting two hours on Friday evening.

A Greek finance ministry source said of the earlier meeting that "major progress on technical and legal matters" had been made but stressed that "much work remained to be done".

"We are a step away," said Venizelos earlier, adding that the negotiations were "difficult and delicate".