Greeks vow to tackle deficit without help

ATHENS - Greek Finance Minister George Papaconstantinou said he can't call for outside aid as his government struggles to cut the European Union's largest budget deficit.

"The worst possible signal which we could send out is one calling for outside help," he said in Athens.

"We will tackle the deficit," he said, adding that tax revenues in January exceeded forecasts "by some percentage points".

Papaconstantinou has so far failed to convince investors that Greece can push the deficit below the EU's ceiling of 3 per cent of gross domestic product.

With European leaders meeting on Friday to discuss the economic outlook, Greek two-year bond yields have surged to the highest in almost a decade and concerns about budget sustainability are spreading to Spain and Portugal.

"The current state of the markets suggests Greece may need conditional support from the key European institutions and governments," said Janet Henry, chief European economist at HSBC Holdings.

European finance officials are for now sticking to their line that Greece, which has a deficit of 12.7 per cent of GDP, won't need outside help.

European Central Bank (ECB) President Jean-Claude Trichet said last week he's "confident" measures announced by Greece will work and EU Monetary Affairs Commissioner Joaquin Almunia says there's no "plan B" for Greece.

Greece's budget woes threaten to overshadow a summit of European Union leaders that compelled Trichet to shorten his trip to a Reserve Bank of Australia symposium in Sydney by one day.

The EU meeting was called to lay the groundwork for a 10-year economic programme to strengthen the region's competitiveness.

Nobel Prize-winning economist Joseph Stiglitz said yesterday that Greece has been the target of a "speculative attack" and doesn't need a bailout.

Papaconstantinou said yesterday that Greece's budget plan will get the "green light" from European finance ministers.

He may this week unveil an overhaul of Greece's tax system that imposes the top 40 per cent levy on Greeks earning less than the current threshold of €75,000 ($150,000) per year.

Investors are largely ignoring EU officials as Greece's fiscal woes focus their attention on gaping budget deficits across the euro region's southern fringe. Credit-default swaps on Spain and Portugal rose to a record yesterday.

"Greece, Portugal and Spain have the most challenging fundamentals but Italy and Belgium could also start to raise some concerns," said HSBC's Henry.

Italian Finance Ministry Undersecretary Luigi Casero said yesterday that his government must "maintain a policy of fiscal rigour" to avoid "difficulties".

Trichet's efforts to shore up confidence in the euro region as a whole are also being ignored.

While the ECB president said on February 4 the bloc's combined budget deficit may be lower than those of the US and Japan this year, the euro fell the next day, extending its slide since the start of December to almost 10 per cent.

- BLOOMBERG