Greece braces for crisis mission to save economy

The Greek government goes into the weekend with a new mission and a new deadline - draft a crisis plan within seven weeks amid strong union doubts to save the economy and stitch up a rift in the eurozone.

Prime Minister George Papandreou is expected to make a statement on Monday on emergency measures, having said he will lay out a programme by the end of January.

"The Prime Minister on Monday will outline the frame of the measures to come," a Finance Ministry source told AFP.

The recently-elected Socialist government is fighting on several fronts.

It has to calm financial markets alarmed at a colossal debt, keep promises made overnight to European Union and eurozone leaders, and get a worried nation to accept cutbacks despite strong trade union doubts.

The task is to beat down a debt of €300 billion by curbing budget deficits and restructuring the economy.

Overnight, European leaders gave Papandreou the benefit of the doubt at a Brussels summit after he promised urgent reforms which are certain to come at high political cost.

Papandreou "presented to us a very frank and open description of the situation in Greece," said European Commission chief José Manuel Barroso during a late-night press conference in Brussels.

"After this evening's discussion, I am fully confident that Greece will succeed in that endeavour," Mr Barroso stressed.

The Athens stock exchange opened with a two per cent jump, building on 5.15 per cent gains yesterday. Prices had fallen by about 10 per cent in the previous two days and followed a series of downgrades of Greek debt amid growing alarm that the country may be heading towards bankruptcy.

Mr Papandreou vowed to "revamp the Greek economy, to modernise the public sector, to fight chronic problems such as corruption and to make sure we have a sound, viable economy."

His government's credibility has been damaged by the revelation that Greece's public deficit is expected to surge to 12.7 per cent of output this year and that debt amounts to 113 per cent of gross domestic product.

He is seeking to reassure financial markets and investors who lend money to Greece that new budget proposals to cut spending will be produced within six to seven weeks.

"There will certainly be a reaction, but there is also a clear understanding in Greece that the measures are necessary," political analyst Thomas Gerakis told AFP.

"Many Greeks are prepared to accept the cost of reform, provided it is efficient and just," he said.

Greek Finance Minister George Papaconstantinou heads on a charm offensive next week to key European capitals for talks with his German, French and British counterparts.

But the markets have shown little patience with the fledgling Socialist government to enact its reforms.

Greece's sovereign debt was downgraded this week by the international ratings agency Fitch, prompting fears of dangerous divergence in the 16 countries which use the euro.

The 10-year yield on Greek bonds has risen to about 5.471 per cent or 2.307 percentage points higher than on the German Bund, meaning that Greece has to pay nearly twice as much as Germany to attract lenders.

Analysts have interpreted political reaction as a precursor to the sort of bail-out assistance offered last year to Hungary, Latvia and Romania, especially with mounting deficit worries also extending to Ireland and Spain.

And the country's influential unions have also warned the government that they do not intend to roll over and accept painful reforms.

"There is no way that workers will pay the cost of the crisis," the spokesman of Greece's main umbrella union GSEE, Stathis Anestis, told AFP.

"We want no repercussions for pensions and taxes," he said.

Greece's main left-wing party Syriza has also indicated that it does not intend to accommodate the government on its mission.

"All you do is go to Brussels, receive your orders and come back with scary talk," Syriza leader Alexis Tsipras told the government in Parliament on Friday.

"This policy will find no consent among society," he said.

The Communists are taking a harsher stance still, calling their affiliated unions to war over the reforms.

"The government seeks to mislead workers... whose salaries and rights it is preparing to sacrifice," the Communist Rizospastis daily said yesterday.