FEBRUARY 27, 2010.Showdown in Athens

Greek Leader Calls for 'Brutal Steps' to Win Bailout From Europe

By MARCUS WALKER,COSTAS PARIS AND CARRICK MOLLENKAMP

Greece prepared additional austerity measures Friday and its prime minister met with the head of Germany's top bank, as the country raced to soothe international concerns over its debt crisis ahead of a crucial bond sale it may hold next week.

Prime Minister George Papandreou met Deutsche Bank AG chief executive Josef Ackermann on Friday, the Greek government said. Some people familiar with the meeting said Mr. Ackermann was there to help arrange a solution to Greece's debt woes that could include the assistance of Germany and France. It isn't clear what that solution is.

German, French and Greek officials wouldn't confirm details of the discussion. All said Mr. Ackermann wasn't arranging a deal, just consulting. A senior German official said Mr. Papandreou and German Chancellor Angela Merkel have been in frequent contact.

Mr. Papandreou told Greece's parliament Friday that "brutal steps" were needed to repair the country's public finances. "We must do whatever we can now to address the immediate dangers today," Mr. Papandreou said. "Tomorrow it will be too late and the consequences will be much more dire."

Greek and European Union officials disagreed Friday over the adequacy of Athens' plans to cut its budget deficits. Greece has already rolled out spending cuts and tax increases it believed would improve its budget balance by €8 billion to €10 billion, or $10.9 billion to $13.6 billion. The moves are aimed at trimming its budget deficit, estimated at nearly 13% of gross domestic product in 2009, to a target of below 9% this year.

But European authorities said earlier this week that Greece's proposed measures wouldn't allow it to hit the 9% mark.

A senior Greek official said Friday the country is working on a package worth an additional €2 billion to €2.5 billion in levies and spending cuts that Athens plans to roll out next week. The official said the government believes the measures should be enough to satisfy the EU—but that the EU disagrees.

"They [the EU] are telling us the current measures will only cut two percentage points. They are pushing very hard for another package of around €4 billion" to make up the shortfall, the official said.

A continued split with the EU could make it harder for Greece to raise €3 billion to €5 billion from a bond issue slated for next week. Greece is hoping to sell the bond, which was initially expected in the past week, after announcing its new deficit-cutting package next week.

Amid jittery financial markets, some Greek officials are worried that the bond might fail to attract enough investor interest. Athens and many financial-market participants are hoping that stronger European countries, led by Germany and France, will soon outline a financial-support plan for Greece to guarantee the country will meet its debt obligations.

Berlin and Paris have avoided any explicit promises of aid so far, keeping the pressure on the small Aegean nation to fix its own problems. German and French officials remain reluctant to bail Greece out unless absolutely necessary to prevent financial-market panic from destabilizing the euro and the European economy.

Greece's wobbly finances have hit the euro and international financial markets because of fears Greece could become the first euro-zone country to default on its debts. Its budget crisis has also become a test of the euro zone's economic and political cohesion, putting financially stronger countries such as Germany and France in a dilemma over whether to aid the struggling member.

Losses could also spread because of the exposure of European banks to Greece and other countries. German banks' overall exposure to Greek debt is $43.2 billion, according to the Bank for International Settlements, with French banks holding $75.5 billion.

While paying for Greece's past profligacy would be politically unpopular elsewhere in Europe, Germany and France can't afford to let the debt crisis spread to bigger Southern European economies such as Spain and Italy, which are major trading partners.

The meeting between Mr. Ackermann, Europe's top banker, and Greek leaders underscored the urgency of Greece's search for a quick resolution to its budget crisis. The sides discussed potential bailout scenarios that may include European public-sector banks such as Germany's KfW, according to people familiar with the matter.

Germany's support for Mr. Papandreou's fiscal measures is a precondition for any euro-zone assistance to Greece, European officials say. Since EU leaders declared general support for Greece on Feb. 12, countries including Germany and France have demanded that Greece take further steps to close its budget gap before they commit to any specific financial aid.

Two meetings next week could provide crucial signals of whether Greece's latest fiscal measures are winning European support. EU economy commissioner Olli Rehn is scheduled travel to Athens on Monday. And Mr. Papandreou will travel to Berlin to meet German Chancellor Angela Merkel on March 5, his spokesman said.

Greece's newest austerity measures are likely to include an increase in the current value-added tax rate of 19%; deeper cuts in public-sector pay; and higher duties on luxury items such as boats and expensive cars. Those come on top of the country's proposals to cut public-sector pay, raise fuel taxes and close tax loopholes for professions, including civil servants, who enjoy income-tax breaks.

The EU has asked Athens to cut one of two bonus months of pay that public-sector workers now get in addition to their normal 12-month salary, a move the government is resisting.

EU officials privately worry that Greece is dragging its heels, hoping to improve its public finances with the least effort necessary, in order to minimize a political backlash at home.

—Adam Cohen contributed to this article.
Write to Marcus Walker at marcus.walker@wsj.com, Costas Paris at costas.paris@dowjones.com and Carrick Mollenkamp at carrick.mollenkamp@wsj.com

Printed in The Wall Street Journal, page A1

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