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EU spotlight on Greek woes

Gavin Hewitt | 15:03 UK time, Tuesday, 2 February 2010

Greek Prime Minister George Papandreou (left) with Finance Minister George Papaconstantinou in Davos, 29 Jan 10ATHENS: There is a sense in Athens of a key moment arriving over its debt crisis. The Greek Prime Minister, George Papandreou, is trying to meet the leaders of all the main political parties. There is an expectation that he'll talk to the Greek people, possibly as early as tonight.

This would be a moment watched not just by the markets but by the other users of the euro. This is the most testing phase in the currency's history.

He is expected to outline what austerity measures will be needed to restore international confidence in Greece's ability to pay off its debts and reduce its deficit.

Tomorrow the European Union will give its view on how the deficit should be tackled and how quickly. Politically it would be wise for the Greek PM to talk to the Greek people first, before Brussels delivers its verdict. There is already widespread resentment that international institutions and markets are suspected of dictating the tough medicine of budget cuts.

This is a delicate balancing act for the Greek government. On the one hand it has to convince sceptical markets that it is serious about paring down the deficit; on the other hand, public sector unions are planning strikes next week to oppose any cuts. Doctors, nurses, teachers, civil servants and metal and textile workers are preparing to walk out. Even the tax collectors may strike.

Today I travelled on a bus with a young doctor, Costa Katarachias. He was going to his hospital to drum up support for a strike. After tax he earns only three euros an hour and will resist any cuts. He does not accept that ordinary workers should pay a price for what was done by previous goverments and, in his view, by international bankers. When I mentioned the euro and the fact that Greece had to live by the currency's rules, he said Greece should leave the euro. It is not an uncommon view here.

For the prime minister, then, austerity will be a hard sell. Many on the left will fight cuts and wage freezes. I met today Vaso Mamali, a leather worker. The shoe factory where she works cannot pay the wages. She, too, resented any pressure from outside Greece. Her bitterness was directed at the European Union. "The EU," she said, "didn't turn out to be the paradise it was supposed to be". In her view there was "too much direction from Brussels".

The key test will be this: will the markets stop testing Greece after the EU has announced its plans, or will the turbulence of recent weeks continue?

And the traders will be watching to see whether the Greek goverment can persuade its people that there is no alternative to cutting wages and trimming government spending. To a great extent this may be decided on the streets of the Greek capital.


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