Squeeze Greece or find funds yourselves

A top EU bailout official warned the eurozone Thursday that it must order Greece to make fresh budget cuts or raise more taxes, or eurozone members will have to cough up more cash themselves. As a new Greek government takes office, the country's second bailout which was stuck in limbo as voters challenged European Union and International Monetary Fund austerity measures in two elections, is "totally off track, months behind schedule," Thomas Wieser told AFP. With Greece's eurozone partners set to meet with new Greek Finance Minister Vassilis Rapanos in Luxembourg, Wieser, head of the key Euro Working Group, said the choice facing currency partners was stark. Either you "stick to the fiscal targets and then you need additional measures" from Greece, the Brussels-based official said, or you change deadlines, in which case "you need extra money." Wieser, who chairs preparations for politically-charged meetings of the Eurogroup, said a deal worth 130 billion euros ($165 billion) in new loans agreed in March was no longer workable. "The economic environment has turned out to be even worse than assumed," he said, warning that by August, the 17-nation eurozone and the IMF will have to "seriously re-negotiate how to get the thing back on track." Wieser said the tax take was down, privatisation had failed to deliver and that other targets -- structural reforms designed to free up export competitiveness -- were also slipping out of range. "If they've screwed up some measures because they didn't do it in May, they will need to have these done for example by October," Wieser stressed. Asked about plans by eurozone hardliners to demand a purge on Greece's military budget -- Athens is one of the highest-spending NATO members -- Wieser acknowledged that "savings on the military budget may well not have been exhausted yet." This however is a fight that has frequently hit a brick wall particularly with France, a big hardware supplier. Currently, Greece is to cut 11.5 billion euros, or five percent of its gross domestic product, by 2014, although Greek parties want this deadline to be put off to 2016. Some like Belgium have suggested there is room for maneouvre, but others warn this is very limited and would likely require fresh sacrifices from a people who only narrowly returned pro-bailout parties amid talk of ATM cash dispensers being shut down during a phased eurozone exit. Some economists maintain that Greece will need a third bailout -- after a first, 110-billion-euro deal in 2010 and the March package, which also involved a 107-billion-euro private debt write-off. Officials cited in the Greek press before the election said there were only enough cash reserves to pay salaries and pensions until July 20. Wieser, an Austrian who was born in the United States, insists he is not issuing "personal preferences." Likewise with Spain set to formally request assistance for its banks, he said it would be "stupid" to ignore the growing risk premium applied to Spanish government borrowings since ministers agreed to offer Madrid aid two Saturdays ago. A different case from Greece, Spain would be granted an extra year to meet its EU deficit commitments, Wieser said. "Nobody has told me that they're violently against it," he said of a European Commission recommendation to put back the deadine to 2014. Spain is trying to slash last year's 8.9 percent public deficit to 3.0 percent of national output, as per Brussels rules. With IMF chief Christine Lagarde and European Central Bank boss Mario Draghi also in Luxembourg, Wieser said investor panic about using rescue funds for Spain's banks that offer added protection to public creditors was unwarranted, "a case of hysterics." "It makes a slight difference," he said of the European Stability Mechanism, as opposed to the European Financial Stability Facility. "But it makes a big difference only in the case of a programme country (like Greece, under external audit and supervision), where you believe there may be a restructuring of debt. "In the case of Greece, it mattered -- in the case of Spain, it doesn't even start to matter."