Greek crisis could force change in EU economy pact

EU officials on Saturday pledged a toughening of monetary policy in the wake of Greece's economic crisis, raising the possibility of modifying the bloc's stability pact.

The EU Energy Commissioner Guenther Oettinger said protecting the stability of the euro was crucial, and if member states refused to start cutting their deficits in 2011, European bodies should be given powers to intervene.

The lesson to draw from the Greek crisis was that members of the 27-nation bloc should pay more attention to public finances and develop new budget structures, Oettinger told Germany's Welt am Sonntag newspaper.

"EU states must start reducing their deficit in 2011. If they refuse, the stability pact must be changed to allow European authorities to intervene better in national policy. The stability of the euro must be guaranteed," he said.

"It is not possible for public debt to explode and for growing debts to be paid by a small number of taxpayers."

Jean-Claude Juncker, the chairman of the Eurogroup panel of finance ministers, said the group had failed to pay enough attention to the Greek crisis, calling it "quite a serious error".

Juncker told the German daily Sueddeutsche Zeitung that "uncontrollable" consequences would follow if Greece were to quit the eurozone, and pledged to keep Athens up to the mark in its efforts to reduce its yawning deficit.

Juncker, who is also Luxembourg's prime minister, said the Eurogroup, the panel of finance ministers whose countries use the euro, would monitor "much more intensively and severely" the performance of its members.

He also warned "a monetary zone cannot last for long if the differences in performance of the various national economies get too great."

If Greece were forced to abandon the single European currency, "the effects would be like an earthquake, uncontrollable", he said, triggering an "extremely negative" reaction from the markets."

Bank of Italy Governor Mario Draghi warned Saturday that the return to economic growth remained fragile in the euro region.

The European Commission said Friday it was preparing new measures to boost coordination among eurozone member countries and supervise their economic policies in light of the Greek debt crisis.

A pledge Thursday by EU leaders to help Athens battle its debt failed to convince currency markets, with the euro falling to 1.3532 dollars, its lowest level in nearly nine months, on Friday in London.

While other eurozone members, notably Spain, Portugal and Ireland, are struggling under a debt mountain, most fears centre on Greece, which had a deficit of 12.7 percent of output in 2009 and debt of 113 percent.

New figures also showed economic growth in the 16-nation bloc had slowed to a meagre 0.1 percent in the fourth quarter of 2009, data agency Eurostat said.

The figures showed that recovery in Germany, Europe's biggest economy, had stopped, the Italian economy went back into contraction, and in Greece recession deepened to shrink by 0.8 percent.