The European Union has approved a Greek government plan to bring its runaway budget deficit under control. However, Brussels will monitor the progress and is reserving the right to call for further measures.
Strikes are already planned to protest the measures
The European Union on Wednesday endorsed a Greek plan to bring its national budget deficit back within the prescribed euro-zone limit of three percent of gross domestic product by 2012.
In 2009, Greece's deficit was more than four times over that limit, at 12.7 percent.
"We share the ambition of the program," said the EU's Economic and Monetary Affairs Commissioner Joaquin Almunia in Brussels. "We consider that the program is ambitious, but also we consider that the program, in terms of objectives … and targets, is achievable."
However, in an unprecedented move, the European Union has reserved the right to monitor Greece's progress tackling its excessive public spending and to call for more drastic measures if the current plan fails to meet its targets.
"If the program that has been presented is followed by commitments, by decisions, by actions to resolve the big imbalances of the public finances, of the economy, this will have a positive effect on the markets," Almunia said.
"If decisions are not there, regardless [of] who said what, the markets will be put [under] additional pressure."
In the past, Greece has submitted incorrect financial data to the EU, though it's unclear whether the national government or regional administrations are to blame for the irregularities.
Prime minister's appeal
George Papandreou says Greece must save money or face disaster
The Socialist government's austerity plan includes a freeze of public sector employment, a 10-percent reduction in public sector wages, a tax hike on fuel at the petrol pumps, and changes to the retirement age and tax policies.
"The public sector has the problem, not the private sector," the managing editor of the Greek business daily Naftemporiki, Dennis Telefakotos, told Deutsche Welle.
"The private sector works fine, the banks work fine. If the state budget was alright, the Greeks would have had no problems, even in the depths of the economic crisis."
However, with strong trade unions and a far-left party already planning strikes and protests against the new plan, the government is walking a tightrope.
"The austerity plan doesn't really go far enough," said Martin Knapp, director of the Greco-German chamber of commerce. "Further measures will probably be necessary, and the Greek prime minister said as much on Tuesday night, when addressing the population."
Prime Minister George Papandreou, after holding an emergency meeting with opposition leaders to appeal for their help with the plan, appeared on national television, telling the people they would have to suffer in the short term in order to avoid long-term financial ruin.
Journalist Dennis Telefakotos says that Papandreou secured the support of the conservative and right-wing opposition parties, but the far left - which has the support of roughly one in 10 Greeks - refused.
Greece's total national debt could reach 120 percent of GDP this year
While Greece is the European Union's biggest economic problem child, it is by no means alone in spending more than Brussels would advise during the recent recession.
Spain's 2009 deficit, for example, weighed in at 11.4 percent of gross domestic product, with countries like Portugal, Ireland, France and even Germany also exceeding the three-percent target, often by considerable margins.
"Greece was, I would say, the perfect victim," said Telelfakotos, when asked if his country had become a euro-zone scapegoat, a way for Brussels to send a warning signal to other indebted member states.
"The 12.7-percent deficit; the fact that it is a small country; the fact that it is a socialist government in a sea of right-wing governments in Europe. It was the perfect case-study."
The euro's value has been steadily falling against the dollar in recent weeks, with budget woes and fears that countries like Greece might have to default on their debt fuelling the phenomenon. However, economists are divided as to whether that currency devaluation is good or bad for European economies.
Author: Mark Hallam
Editor: Nancy Isenson