Greece faces EU deadline on debt

BRUSSELS - Greece has only days to explain its use of complex financial deals that it used to mask debt and just a month to prove that its drastic budget cuts go far enough to reassure markets and EU governments, who are reluctant to bail Athens out if it can't pay its bills.

Greece's troubles have plunged the 16 nations that use the euro into a crisis by breaking rules on debt and deficit that underpin Europe's currency union amid worries that its problems could be even bigger because its public finance figures cannot be trusted.

The EU's top economy official, Olli Rehn, said yesterday that he wanted the Greek Government to supply answers by Friday on how it used currency swaps and how that affected debt and deficit figures.

European Union finance ministers yesterday also gave Greece a deadline of March 16 to show that it can make big spending cuts to bring its deficit down from the EU's highest, 12.7 per cent of economic output, to 8.7 per cent this year.

They said in a statement that this was essential to "remove the risk of jeopardising the proper functioning of economic and monetary union."

Euro zone nations - which have pledged to provide a financial bailout to Greece if needed - said they would demand new spending cuts, higher value-added taxes and fuel taxes and new taxes on luxury goods, including cars, if Greece can't make the deficit reductions it is promising.

Greece now has a month to show that it can make real savings from a freeze on public sector salaries, cuts to bonuses and stipends and promises to reform pensions and healthcare.

The Government is facing opposition at home. Greek customs officials walked off the job yesterday for a three-day strike which will hamper imports and exports.

But Greek Finance Minister George Papaconstantinou insisted that he is already ahead of schedule on sweeping budget reductions and that public finances reported a slight surplus last month thanks to a one-off tax on large companies.

"It's a matter of credibility for the country," he said. "The execution of the Greek budget for the month of January ... is going quite well. We have actually a surplus." AP