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Europe warns money markets that they can't destroy Greece

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Europe on Monday warned international money markets that a relentless attack on Greece and by extension the euro will fail, with new cost-cutting measures set to be imposed on Athens.

As the 16 countries that make up the eurozone battle to ring-fence their shared currency amid the fallout from Greece’s unprecedented debt crisis, contingency bailout plans are also being prepared, their leader said.

“The financial markets are completely wrong if they think they can destroy Greece,” said Luxembourg Prime Minister and Eurogroup president Jean-Claude Juncker.

Earlier, Greek Finance Minister George Papaconstantinou had warned that only an “explicit message” concerning concrete, financial help from Brussels would be enough to deter market attack dogs.

Drastic action by the Greek government has already sparked strikes and protests at home.

Greece agreed at the late-night meeting of finance ministers to present new cost-cutting proposals if Brussels remains unconvinced, by March 16, that it can meet its deficit reduction target for 2010, Juncker said.

Athens has committed itself to reducing a 2009 deficit running to 12.7 percent of Gross Domestic Product by four percentage points over the course of this year — all under the beady eyes of European Commission inspectors.

These additional measures “should focus on expenditure cuts” but also encompass “revenue-increasing measures,” which could include “increasing VAT” and “establishing extra duties on luxury goods including private cars,” Juncker said after chairing the meeting of eurozone finance ministers in Brussels.

Eurozone ministers flexed their muscles by reserving the right to use qualified majority voting, without Athens, to impose tough new budgetary decisions.

“It’s up to Greece to consolidate its public finances, it’s up to the euro area to stand determined,” Juncker told a press conference, flanked by new economic and monetary affairs commissioner Olli Rehn.

“There is a clear case for additional measures,” Rehn had himself warned in advance.

Market analysts have been calling for numbers to be revealed to show how far the eurozone will go to bail out Greece in the event its financial troubles prove insurmountable without contributions from partners.

However, Juncker added that it would be “unwise” to go public with the detail behind “the measures we are putting in place, because we don’t think it would be wise to discuss publicly the instruments” being prepared.

Financial markets have sent the value of the euro tumbling against the dollar over recent months, adding to pressure on Athens to take — or accept under orders from Brussels — fresh, drastic action to slash its runaway debt.

Related article: Greece, the EU, deficits and debt

Again on Monday, the euro fell to 1.3607 dollars in late trading in London from 1.3629 dollars late in New York on Friday.

“My guess is that what will stop markets attacking Greece at the moment is a further, more explicit message that makes operational what was decided last Thursday” by European heads of government, Papaconstantinou had said going into the talks.

Now is the time to “work out the mechanism so that, if necessary, the mechanism will be there,” he argued.

“Go back to the text” agreed by European heads of government and state at a special summit last Thursday, Juncker said when asked why Greece had agreed to hand over temporary budgetary sovereignty.

Europe had vowed then to implement “determined and coordinated measures” to “safeguard financial stability.”

Greece’s ballooning public deficit has seen its total debt shoot up to about 300 billion euros, or 113 percent of GDP, nearly double the 60 percent eurozone limit.

The eurozone has a three percent limit for deficits, although 20 of the EU’s 27 nations are currently in breach of that requirement.

Moody’s credit rating agency calculates that Greece must allocate 15.1 percent of all its revenues just to service its debts this year, twice the level for Spain and Portugal.
Source: AFP

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