ECONOMY

Further steps send ‘strong signal’

European Union officials said Greece’s additional deficit-cutting measures are a «strong signal» of the government’s determination to tackle its budget crisis, in views echoed by the International Monetary Fund (IMF). But Germany stopped short of indicating that financial aid may be heading Greece’s way after the latest steps at fiscal tightening in a sign that it may not be planning to support its southern EU peer. The further 4.8 billion euros in budget cuts confirm «the Greek government’s commitment to take all necessary measures to deliver the program’s objectives,» Luxembourg’s Jean-Claude Juncker, who leads the group of euro-area finance ministers, said yesterday. European Commission President Jose Manuel Barroso said Greece’s deficit-reduction program «is now on track.» Athens is trying to convince European allies and investors that it can rein in the region’s biggest budget shortfall. The additional spending cuts, in particular in the public wage bill, «are essential for achieving permanent fiscal consolidation,» Juncker said. Both Juncker and Barroso said «full and timely implementation» of the measures along with structural reforms «is paramount.» This is «important for the overall financial stability of the euro area,» Barroso said. The package, half spending cuts and half revenue measures, includes higher tobacco, alcohol and sales taxes, plus a cut of 30 percent to three bonus salary payments civil servants receive during holiday periods. Prime Minister George Papandreou said the steps are necessary for «the survival of our country and our economy.» The IMF welcomed the Greek government’s additional deficit cuts and said it stands ready to share «technical expertise.» «The [Greek] authorities have put together a very strong fiscal package for 2010,» IMF spokeswoman Caroline Atkinson said in a statement. «The implementation of the fiscal program will be a crucial step forward in a multiyear process.» Greece’s Finance Minister Giorgos Papaconstantinou left open the possibility yesterday of Greece turning to the Washington-based IMF to help meet its borrowing needs. Greece could turn to capital markets for funding by offering a bond issue as early as in the next few days, according to local press reports. Meanwhile, German Chancellor Angela Merkel said financial aid for Greece isn’t on the agenda when she hosts PM George Papandreou for talks tomorrow in what some economists interpreted as being a clear of lack support for Greece from Germany. Measures prompt bond rally, euro rise News of the government’s latest batch of austerity measures prompted a rally in Greek bonds and helped the euro to rise to a two-week high. The yield on the 10-year Greek sovereign bond fell to 6.012 percent from 6.149 percent on Tuesday night. Bond yields and price move in opposite directions. The all-important spread – or differential – with the benchmark German Bund narrowed to 2.88 points from 3.03 on Tuesday. Moody’s said the new measures «lend credibility» to the Greek fiscal adjustment plan and are consistent with Moody’s current A2 rating, with a negative outlook, for Greece’s government bonds. «These new measures are a clear manifestation of the government’s resolve to regain control of public finances,» said Sarah Carlson, senior analyst at Moody’s Sovereign Risk Group and lead analyst for Greece. Meanwhile, the euro gained 0.8 percent to $1.3718 in early trade in New York, from $1.3615 on Tuesday. Europe’s common currency has fallen 4.1 percent against the dollar this year amid concern Greece’s struggle to narrow its deficit will hamper the region’s recovery.