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Updated: February 27, 2010 16:39 IST

Greek PM meets Deutsche Bank chief on crisis

AP
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Greek Prime Minister George Papandreou seen at his office in the parliament in Athens on Friday. Photo: AP.
Greek Prime Minister George Papandreou seen at his office in the parliament in Athens on Friday. Photo: AP.

Greek Prime Minister George Papandreou, held talks with the head of Germany’s biggest bank on Friday on the country’s wide—reaching debt crisis, under intense EU pressure to show quick signs of improvement or cut deeper into spending.

Meanwhile, the White House said President Barack Obama had spoken with German Chancellor Angela Merkel, and British Prime Minister Gordon Brown about Greece as part of a Friday video teleconference. Papandreou is expected to meet Merkel in Berlin, on March 5 and Mr. Obama in Washington on March 9.

The Greek government declined to provide any details on the discussions with Deutsche Bank CEO Josef Ackermann.

“There was a half—hour meeting, one of several the Prime Minister has had with heads of similar organizations on the international crisis and Greece,” Papandreou aide George Elenopoulos said.

Deutsche Bank spokesman Ronald Weichert, said he could only confirm that Mr. Ackermann is in Greece “on a normal business trip,” meeting with government officials.

But Mr. Ackermann refused to comment after the meeting on the prospect of his bank playing a role in helping Greece, whose fiscal woes have shaken global markets’ confidence in the common European currency.

The country is widely expected to issue government bonds next week and experts believe it could resort to selling them directly to a few large institutional customers rather than auction them on capital markets - at a prohibitively high interest—rate premium to offset fears of a Greek default.

In Washington, Mr. Obama’s spokesman Robert Gibbs, reiterated that the White House believes the European Union “can and will act appropriately” to ensure an effective response to the crisis in Greece.

Bolstered by polls showing that most Greeks - despite union anger - back austerity measures, Mr. Papandreou warned on Friday his centre—left government faces a stark dilemma: “Let the country go bankrupt or react.”

“We are being led to make violent changes,” he said.

EU Finance Commissioner Olli Rehn, will be in Athens next week to inspect Greece’s budget reforms, ahead of a March 16 EU deadline for fiscal improvement or further tighten the belt.

Greece shocked its EU partners and international markets last year, abruptly revising its budget deficit up to 12.7 percent of annual output - four times the EU limit - from an initial forecast of under four percent.

The government, elected in October, has vowed to cut overspending to under three percent of GDP in 2012 through public sector salary and hiring freezes, combined with hikes in consumer taxes and retirement ages. For this year, it is targeting a cut equivalent to 4 percent of GDP, more than euro10 billion.

In the first good news so far, Finance Ministry figures released on Friday confirmed earlier reports that public finances in January were stronger than expected.

However, EU, European Central Bank and International Monetary Fund inspectors in Athens this week expressed doubts Greece would be able to meet all its deficit—busting targets and urged additional austerity measures.

The government has said it will do more if needed, but draws the line at sweeping civil service pay cuts.

Labour Minister Andreas Loverdos, said the EU was urging further spending cuts of euro1.4 billion ($1.9 billion).

“What we have proposed in the stability plan for 2010 is the reduction of expenditures by euro12 billion, and this additional figure would be euro1.4 billion,” he said.

Mr. Papandreou insists Greece is not seeking direct financial aid from EU countries but support that would calm financial markets and allow Athens to borrow money at pre—crisis rates.

“We expect our partners ... to fulfil their commitments, both explicit and implicit, that derive from a community built on the dream of a unity that goes far above simple economic relations and narrow national interests,” he told parliament.

“At the end of the day, it is a matter of honour and pride for our country to put our own house in order,” Mr. Papandreou said. “We must forget the political cost and only think of our country’s survival.”

Vague expressions of political backing from Brussels this month failed to convince markets a quick solution was at hand for Greece, whose borrowing costs remain cripplingly high.

The interest rate difference, or spread, on Greek government bonds over the equivalent German bond {mdash} a key indicator of market confidence - remained high on Friday, at 337.8 basis points.

Data on the budget execution in January indicated that the austerity plan is paying off, so far. A Finance Ministry statement said the month showed a budget surplus of euro578 million ($784 million), compared with a euro1.55 billion ($2.1 billion) deficit in January 2009.

Although much of the revenue boost was due to a one—off tax on company profits, both revenue and spending figures were better than expected.

Net revenues were up 16.6 percent - against the annual budget target of 10.8 percent - while spending fell 10.7 percent compared with the annual target of 2.8 percent.

Greek stocks ended the day higher on Friday, with the benchmark general index closing 2.17 percent up.


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