EU places Greece under tough budget scrutiny

(BRUSSELS) - The European Union on Wednesday approved Greek efforts to tame its debt crisis but placed Athens under unprecedented economic scrutiny as its prime minister unveiled a series of austerity measures.

The decision to place Greece under a permanent system of monitoring is a first for the EU, which also rapped Athens over faulty budgetary data amid investor concerns over rising debt levels in weaker European economies.

"The commission fully supports Greece in this difficult task," EU Economic and Monetary Affairs Commissioner Joaquin Almunia said in Brussels.

But he said "the detailed list of measures will be monitored from day one.

"Every time that some measures have not been adopted or every time we observe slippages we will ask the Greek authorities to adopt additional measures," he added.

The moves are aimed at bringing Greece into line over its massive debt and a runaway public deficit of 12.7 percent, which have shaken the euro and put pressure on Greek sovereign bonds.

Early reaction from the markets was generally positive, with the European single currency firming to 1.4007 dollars in late morning London trade after 1.3959 dollars in New York late Tuesday.

But the euro again lost ground later Wednesday, falling back to 1.3915 dollars.

In the bond market the yield on Greek sovereign bonds fell to 6.516 percent from 6.742 after having risen to more than seven percent last week on the back of mounting concern over Greece's ability to pay its debts.

Greek Prime Minister George Papandreou has ordered a public salary freeze, a higher retirement age for men and a hike in petrol prices, urging political rivals to back his budget to reassure the international financial community.

"It is a national duty not to leave the country on the edge of an abyss," the Socialist leader said in a nationally televised address late Tuesday.

The Greek finance ministry said the EU decision "confirms the government's efforts and determination to enforce a front-loaded programme to tidy up the state and rapidly proceed with a number of important reforms to boost the transparency, reliability and viability of (Greek) public finances."

However that reliability remains in question, with the EU Commission opening "infringement proceedings" against Greece on the grounds that it had "failed in its duty to report reliable budgetary statistics."

Athens is by no means alone in the EU in having a bulging deficit, but the state of its national finances is seen as the most worrying.

Greece's debt stands at more than 294 billion euros (412 billion dollars), its deficit is well beyond EU limits of three percent of output for eurozone members and it suffered a triple downgrade of its sovereign debt in December.

Papandreou's plan aims to cut the deficit to 8.7 percent of gross domestic product this year, with a target of falling below 3.0 percent by 2012.

His government has already ordered big cuts in spending and vowed to stop waste, tax avoidance and corruption, which Papandreou admitted is "rampant".

Almunia welcomed the plan.

"This is in the interest of the Greek people, who will benefit from better and more durable growth and job opportunities in the future, and it is in the interest of the euro area and of the EU as a whole," he added.

Under the monitoring measures, Greece is required to submit a first report in mid-March, spelling out the implementation calendar of measures to achieve the 2010 budgetary targets.

Athens will then be required to submit quarterly progress reports from mid-May onwards.

"This is first time that we establish such an intense and quasi-permanent system of monitoring but that is needed given the circumstances," Almunia told reporters.

Greek Finance Minister George Papaconstantinou urged fellow EU members to back his country's efforts and defend it against recent "incredible" attacks by speculators on the financial markets.

"They have to back Greece's effort and to tell international markets that there is no weak link (in the eurozone), that we are all in the same boat and must work together," he said.

But analysts said doubts remain over whether Greece can reduce its deficit.

"Calling for these austerity measures is one thing, but the real test comes in implementation, and that could be where the wheels come off," said Michael Hewson of CMC Markets.

Commission recommendations for Greece