Finance ministers warn Greece to get tough on budget

BRUSSELS - European finance ministers told Greece yesterday to prepare tougher spending cuts and impose new taxes, including a tax on luxury goods and cars, to fix its debt crisis.

The 16 countries that use the euro warned that Greece would need to take the extra action if current cuts don't bring its massive deficit down from 12.7 percent of economic output to 8.7 percent this year.

Greece will report back on its efforts by March 16.

Eurozone nations have pledged to help Greece if it can't repay its debts - but want Greece to make big spending cuts first.

Earlier yesterday, Greek Finance Minister George Papaconstantinou said: "My guess is that what will stop markets attacking Greece at the moment is a further, more explicit message that makes operational what has been decided last Thursday" at a meeting of EU leaders.

Market worries of a default have raised the cost of Greek government borrowing in recent months and caused the euro to slide to a near nine-month low against the dollar.

Greece's credibility came under fire from the European Commission yesterday, which said it wanted Greece to explain by the end of February how since 2001 it used complex financial deals, called currency swaps, that allegedly made its debt limits look lower.

A Feb. 1 report commissioned by the Greek finance ministry also warned of "significant debt revisions" for 2009 statistics due to swaps, debt to suppliers, and state-guaranteed loans that may default.

It said some swaps are now "being done in order to transfer interest from the current year to the future, with long-term loss to the Greek state."

EU spokesman Amadeu Altafaj Tardio said such swaps weren't illegal unless Greece was not using market rates to calculate the exchange rates used for the swaps. Greece never told the EU that it was using the swaps to mask debt, he said.

Papaconstantinou said some of the derivative contracts used in the past "were at the time legal and Greece was not the only country" using them. He said they have now "been made illegal, and Greece has not used them since."

He said the government now did not want to use financing that was not approved by the EU statistics agency Eurostat.

"We do want to restore credibility," he said. "We have enough trouble as it is convincing people that our numbers are real."

The Greek government is also trying to prove that it can solve its problems on its own. It says isn't asking for a bailout and won't need one.

But Papaconstantinou said he would like to see the 16 countries that use the euro "work out a mechanism so that if necessary the mechanism will be there" for any member that cannot pay its debts.

He blamed financial markets for exaggerating Greece's debt worries, saying Greece's economic output is just over 2 percent of the euro area's and a default "would not . . . create a problem for the euro area."

"Any country is prey and will be prey to speculative forces," he said.

The European Commission had already warned that it would ask Greece to do more if it can't implement promised spending cuts and tax increases.

It wants to keep Greece on a tight rein, ordering the government to report back in mid-March to show what kind of cuts it has made. The EU could then demand tougher action.

The Greek government has promised to do everything necessary to reduce its deficit from 12.7 percent of gross domestic product last year to 8.7 percent this year - and under a 3 percent limit set by EU rules by the end of 2012.

The EU is also seeking the power to audit the Greek public finances after a damning report from Eurostat that said Greece falsified data to hide the extent of last year's deficit.