Prime Minister George Papandreou said on Wednesday Greece will not quit the euro zone or seek help from the IMF and made clear measures to cure fiscal ills would not hurt the country's poor.
Sounding defiant in the face of EU pressure and a hammering by markets, Papandreou made clear he knew his country had to take tough measures to cut ballooning deficits and debt but refused to abandon pre-election pledges to help the weak.
"There is no case of Greece leaving the euro zone or resorting to other kind of help, such as the IMF," Papandreou told a news conference to mark the socialist government's first 100 days in office.
The premium investors demand to hold 10-year Greek government bonds over benchmark German Bunds widened on Wednesday and the cost of insuring Greek debt hit a record high.
A day before presenting a 3-year deficit-cutting plan, Papandreou said Greece wanted to restore its credibility among investors, and Greeks were keen to turn the page after five years of conservative rule.
"The situation we found drives one to tears," Papandreou said. "Our duty is not to allow Greece to become a scapegoat or Europe's black sheep."
He made clear he would stick to his vision for deeper, long term change rather than spending cuts to plug budget holes and ruled out a Value Added Tax (VAT) hike.
"It would not be a courageous measure to make the poor and wage-earners pay -- this is not our policy," he said. "Some bankers or others abroad may like it, but I have said that we are going towards a different model... We have said that those who have more will pay more, including the banks."
Analysts said his comments illustrated how the government is trying to keep the public engaged. Opinion polls show solid public support for measures provided they are fair but unions have already planned strikes, starting Feb 10.
"That really illustrates the balancing act that the government has to do at the moment, on one hand pledging to tackle the fiscal deficit and on the other saying the poor and workers will not carry all the weight of the adjustment," said Diego Iscaro of IHS Global Insight.
The spread, which had been widening all day, grew to 258 basis points, versus around 236 bps late in the previous trading day, after Papandreou's comments.
IMF officials visiting Greece in response to a request for advice on fiscal problems, met Finance Minister George Papaconstantinou on Wednesday to discuss budgeting, tax policy and ways to better monitor government spending.
Pressured by markets and its EU peers, Greece is drafting a fiscal consolidation roadmap to bring its bloated budget deficit under the European Union's 3 percent cap and convince markets it will do what it takes to get out of a fiscal crisis.
The plan is expected to be revealed during a cabinet meeting on Thursday and submitted to the EU by early next week. Financial markets want to see concrete policies and the EU executive has asked for more quantifiable measures.
Greece's EU partners were outraged to learn from the new government soon after it took office that the defeated conservatives had grossly underestimated fiscal ills, with the 2009 deficit not 3.7 percent of GDP but a massive 12.7 percent.
An EU source said the European Commission was likely to take legal steps against Greece over bad statistics as anger rose among EU peers.
"It is very dissatisfying that Greece has several times put forward figures that later have proven to be entirely misleading," Danish Finance Minister Claus Hjort Frederiksen on Wednesday told Reuters. "This is very unacceptable."
Papandreou said there had been "foul play" with the country's statistics, adding that a parliamentary commission may be set up to investigate the matter.
Greece's first auction of T-bills this year saw yields spike on Tuesday, providing no let up from the high borrowing costs that are putting a strain on Greece's budgets.
Moody's, which in December cut Greece's debt to A2 with a negative outlook, said on Wednesday this downgrade reflected a view that implementing measures would be challenging.
ReutersLast Mod: 14 Ocak 2010, 08:15