Brussels- Euro zone finance ministers will exert more pressure on Greece to implement planned budget deficit cuts at a meeting on Monday, as they look to avoid having to deliver on a pledge of support for Athens.
They are not expected to ask Greece for additional fiscal measures until after a review of Athens' situation in March, although they may discuss what extra steps Greece could be asked to take if it does not show progress, sources said.
European leaders told Greece on Thursday it must cut its budget deficit by 4 percentage points this year, from 12.7 percent of GDP, and bring it below the EU ceiling of 3 percent by 2012, moves that Athens has said it will make.
That message will be reiterated by finance ministers from the 16 countries using the euro at a meeting on Monday.
For 2010, Greece already has commitments in place. Greece must simply be precise about what it is going to do (to get there), a senior EU source said last week.
(Any) additional measures are for 2011 and 2012.
EU leaders are hoping that pressure and a concerted effort by Greece will be enough to get on top of the country's deficit and debt problems and assuage markets, but have said they are prepared to take determined and coordinated action to safeguard financial stability in the euro area if needed.
That was designed to send a signal to the bond and currency markets -- where Greek yields have come under intense pressure and the euro has weakened -- that Greece will not be allowed to default on its debt and that the euro is not threatened.
But leaders did not specify what, specifically, they would do to support Greece if it came to it, a lack of detail that has left markets with a reason to discount both Greece and the euro.
In a statement after the EU leaders' summit last week, European Central Bank President Jean-Claude Trichet noted Athens' commitment to do whatever was necessary, including adopting additional measures to ensure its budget deficit cut target was implemented.
The premium investors demand to hold 10-year Greek government bonds rather than benchmark German Bunds rose to 302 basis points on Monday, from 275 bps late on Thursday, and the euro was trading down at 1.3610 to the dollar.
Concerned about how the market is exploiting Greece's weakness, and by extension that of the euro, euro zone finance ministers could also discuss measures to restrict short-selling of Greek debt via credit default swaps, one source said.
While euro zone finance ministers are agreed that the primary responsibility lies with Greece to get its fiscal and economic house in order, Athens' determination to act is being tested by unions, which don't want to see spending cuts.
With unemployment rising in Greece and social unrest always just below the surface, deep budget cuts and higher taxes could put the Socialist government on a collision course with the people.
Greece must do what it must do. If they do that, there will be no need for specific measures, one euro zone source involved in the preparations of Monday's meeting said.
If they don't do that, there will be a show of determined and coordinated action, which is unspecified as yet, he said, hinting at the financial support measures that could be taken.
Such measures will not be discussed on Monday because it was too early, several euro zone sources said. Greece was still able to borrow money on the market and detailing rescue steps now would send a signal that the situation was critical already.
The ministers are very reluctant to define anything ex-ante. When there is a problem, they will sit down and hammer it out in 30 minutes, a second euro zone source said.
Eurogroup Chairman Jean-Claude Juncker told the German Sueddeutsche Zeitung newspaper in an interview on Saturday there were instruments available for an intervention that could be used when necessary, but he would not name any at this stage.
On Monday and Tuesday, EU finance ministers will endorse the Greek deficit cutting plan which has already been approved by the European Commission, the EU executive arm.
They will also step up the 27-nation bloc's disciplinary budget procedure against Athens to the last stage before sanctions. If Athens does not take the action recommended by the ministers to cut the deficit, the EU could fine it.
There will be more pressure on Greece to deliver rather than more work in preparing the euro zone for a scenario that Greece fails to deliver, the first euro zone sourced said.
(Reporting by Jan Strupczewski, editing by Mike Peacock))