EU warns Greece no bailout as officials assess action plan

(ATHENS) - The Spanish EU presidency on Thursday warned struggling Greece it could not expect a bailout by the rest of the bloc as EU officials scrutinised the country's plans to reduce a mountain of debt.

Missions from the European Commission and Europe Central Bank are on a three-day visit to Athens to assess the Socialist government's plan to rescue the economy amid deep scepticism in the financial markets.

Greek finances are in a parlous state, with the public deficit estimated at 12.7 percent of Gross Domestic Product (GDP) in 2009, compared with an EU upper limit of just 3.0 percent.

Its total public debt, of accumulated past annual deficits, is put at 113 percent of output for 2009 and is set to rise further, compared with the EU limit of 60 percent.

In Madrid, Spain's Secretary of State for European Affairs Diego Lopez Garrido said economic coordination within the EU was necessary "but there is a limit, which is no bailout."

He said there could be no easing of this rule in the 16-nation euroszone where each country had to make sure its finances were in order.

"Each country has a responsibility on (the) budget," he told a news conference. "You have to address the risk of (the) budget" in each country.

After EU officials met Georges Zanias, who is overseeing the Greek action plan, they went into talks with Finance Minister Georges Papaconstantinou and other departments ahead of their departure on Friday.

Greece is supposed to submit a comprehensive plan of action to the EU later this month to show that it can bring its public finances back into line.

Minister Papaconstantinou said the Greek measures "aimed at the reconstruction of the national economy ... (and) involved major changes in both the financial and fiscal sectors."

They also involved changes to the way the budget is formulated, and to the way the state and the economy is organised, he added.

Minister of the Economy Louka Katseli said the government's programme planned to get the country through the crisis in three years.

Athens' measures aim to get the public deficit down to 8.7 percent of GDP this year and then to 3.0 percent by 2012.

Analysts said there are widespread concerns that if the problems in Greece are not properly handled, they could raise questions about the wider eurozone -- an issue the Spanish EU presidency was clearly addressing.

"While there are growing signs that pressure from the markets is forcing Greece to put its fiscal house in order, there is a real risk that it will result in a catastrophically large economic contraction," analysts at Capital Economics in London commented.

"Such an event could eventually lead default to become an increasingly attractive option."

They said that given an earlier European Central Bank warning that other eurozone countries would not automatically provide a bailout, a further rise in the steep interest rate Greece has to offer to attract lenders was possible.

"The government may ultimately be forced to scale back its fiscal plans," they said.