Greece faced down pressure from euro zone peers to step up budget cuts and stem a looming crisis in its debt markets on Monday, as the Brussels again questioned its past reporting of public finances.
Greece is the first country in the euro's 11-year history to require an emergency statement of political support from other European countries as it struggles to weather pressure from financial markets worried about its massive debt.
But Finance Minister George Papaconstantinou warned against asking the government, which faces growing public dissent over budget cuts, to do too much too fast.
We're trying to change the course of the Titanic, it cannot be done in a day, Papaconstantinou said ahead of meeting with euro zone finance ministers in Brussels.
If additional fiscal measures are needed, we will take them. Today it is Greece, tomorrow it can be another country. Any European country can be prey to speculative forces.
Greece faces two major hurdles in the coming months, with two lots of more than 8 billion euros of government bonds to refinance on April and in May. Markets had hoped last week that meetings this week might generate commitments of actual financial aid.
But European Monetary Affairs Commissioner Olli Rehn suggested that the talks in Brussels, which officials said were not aimed at producing a concrete rescue plan, would focus on demanding more of Greece than it has announced.
Rehn said ministers backed Greece's three-year plan and this year's target of a four percentage-point cut in the deficit -- to 8.7 percent of gross domestic product from 12.7 percent of GDP in 2009 -- but that it might be hard to achieve.
We expect that in due course the Greek government will take necessary additional measures to reach that target. Our view is that risks related to the implementation and macro-economy and markets are materializing, Rehn said. And therefore there is a clear case for additional measures.
Greece confirmed last week it was still in recession in the last quarter of 2009. The euro zone as a whole barely grew as German economic growth halted and Italy and Spain also registered drops in GDP, making both deficit reduction and the provision of aid politically all the more challenging.
Jean-Claude Juncker, chairing Monday's talks, echoed Rehn's remarks and noted that European leaders had pledged support at a summit last Thursday on the condition that Greece stuck firmly to viable plans to fix its finances.
We will have a discussion on the basis of what the European Council (summit) agreed upon, said Juncker, who is Luxembourg prime minister and chairman of the so-called Eurogroup forum where ministers confer regularly on pan-European matters.
It is clearly mentioned that Greece has to make sure that it cuts it budget deficit for 2010 by four percent and we have to check if this is possible or not and it will all depend on the answers given to that crucial question, he said.
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.
Although leaders said little of how they may help, they have said they are ready 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 bond yields have risen and the euro has weakened -- that Greece will not be allowed to default on its debt and that the euro is not threatened.
LOW ON DETAIL
The lack of specifics 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.
In Berlin, a finance ministry spokesman appeared to rule out one option that has been discussed within Germany -- the idea of creating a European fund that could be tapped for Greece.
That does not appear to be a solution to the problem, Finance Ministry spokesman Michael Offer told a regular news conference, adding that there was no way around Greece consolidating its public finances.
Adding to Greece's woes, a European Commission spokesman said on Monday clarification was being sought on media reports that Athens in the past resorted to derivatives contracts that helped lower the level of debt and deficit it reported.
Greece had not informed EU statistics agency Eurostat of any dealings with Wall Street banks of the kind reported by German and U.S. media over the weekend, European Commission spokesman Amadeu Altafaj said.
I want to state that Eurostat was not aware of such transactions, he said.
We need the information on what kind of transactions took place, if they did, and what was the effect on the government accounts of Greece, he said.
Responding in comment to reports, Greece's Papaconstantinou said:
The kind of derivatives contracts reported by some newspapers were legal at that time. Greece was not the only country to use them.
These kind of more exotic operations were completely legal. There were made illegal, we have not used them since then.
(additional reporting by John O'Donnel and Marcin Grajewski; writing by Brian Love; editing by Patrick Graham)