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EU Imposes Budgetary Measures on Athens

Greece on Thursday became the first euro-zone nation to fall afoul of tighter budgetary provisions for violating the bloc's deficit rules, as EU finance ministers continued to debate revamping the stability pact.

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Athens must now put its fiscal house in order

European Union finance ministers continued tricky consultations on the European stability and growth pact in Brussels on Thursday, after breaking off late-night talks Wednesday. Although there is general agreement that the fiscal framework for the European single currency needs to be overhauled, ministers said they still had important details to work out.

"We've made good progress. A deal is possible," said Luxembourg Prime Minister Jean-Claude Juncker, who is also they finance minister in his tiny country. "But we all still need to move a bit further."

The European Union's finance ministers agreed Wednesday to pursue a formal sanctions process against Greece after revelations that the country's budget deficit far exceeded the EU limit of 3.0 percent of GDP since 1997. A formal announcement on the measures to be taken against Athens was made on Thursday morning.

Greece's deficit last year was 5.5 percent of GDP, the highest in the euro zone. Under the new conditions imposed by the EU, Athens will be forced to cut its deficit to 3.6 percent this year in order to fall under the 3.0 percent limit in 2006.

Greece under pressure

If Greece fails to do so, Brussels could then impose sanctions costing billions of euros in two steps: Athens will have to present its fiscal plan to the EU by March 21 and it will have to report back upon the implementation of the measures every six months.

For other countries having difficulty with EU budgetary rules, such as Germany and Italy, the revamped stability pact is likely to let them off the hook. German Finance Minister Hans Eichel reiterated Berlin's position on Thursday that the pact needed to be "more growth oriented" in order to help out the flagging euro-zone economy.

"Today it's really going to get down to brass tacks," said Eichel, predicting difficult end negotiations.

Germany was one of the main proponents of setting a deficit cap of 3.0 percent of GDP for euro members, but Berlin is now leading the charge for a more flexible interpretation of the pact. And that makes smaller EU countries fear that weakening the pact will hurt the euro's credibility.

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