Greece urged to make further cuts in return for rescue deal

AFP - World leaders demanded tough new measures by Greece to control its debt mountain as officials reported that talks on a 120 billion euro (160 billion dollar) bailout deal were nearly complete.
   
Amid growing fears that the debt crisis could spread to other parts of Europe, US

President Barack Obama, German Chancellor Angela Merkel and the European Union called for resolute action by Greece to control spending.
   
New signs that Germany could back the bailout helped global stocks and the euro stabilise after days of losses caused by the demotion of Greek debt to "junk" status and the downgrading of Portugal and Spain's credit rating.
   
Greek stocks jumped by 7.77 percent and the interest rate that Greece has to pay to sell new debt fell back to below 10 percent on Thursday, although yields on a two-year bond were still high at more than 12 percent.
   
Greece faces a May 19 default deadline to secure new funds.
   
After resisting for many weeks a rescue which is unpopular among Germans, Merkel has signalled support for Greece but demanded greater efforts to cut a public deficit which the EU puts at 13.6 percent of gross domestic product.
   
Following talks with Prime Minister George Papandreou in Athens, senior trade union officials said the European Union and the International Monetary Fund have asked Greece to save 25 billion euros in the next two years.
   

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Representatives of the IMF and the EU have asked for a cut in Greece's public deficit of "10 points in two years" in return for tens of billions of euros in emergency loans, a top union official said on condition of anonymity.
   
Ilias Iliopoulos, secretary general of the ADEDY public workers union, said the conditions being demanded for the money constituted "extremely rough measures which go against development and will lead to recession."
   
In Brussels, the EU's commissioner for economic and monetary affairs Olli Rehn said that marathon talks with Greece were nearly complete. But he insisted that Greece had to take effective action.
   
Rehn said EU aid would be conditional on "implementing the decisions required at every stage to meet the conditions of fiscal consolidation and structural reforms."
   
On Wednesday, Merkel and Obama spoke on the phone about "the importance of resolute action by Greece and timely support from the IMF and Europe to address Greece's economic difficulties," the White House said.
   
French President Nicolas Sarkozy, on a state visit to China on Thursday, meanwhile pledged solid backing for Greece and the euro.
   
"France is fully determined to support the euro, and to support Greece," Sarkozy told AFP and French newspaper Le Parisien.
   
He said the plan put together by Athens to solve its debt problems was "credible"

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, adding: "We have confidence in the Greek government and we're working flat out so all this can be put into place without delay.
   
IMF chief Dominique Strauss-Kahn earlier warned confidence in the entire 16-nation euro area was now "at stake."
   
Merkel on Wednesday said she hoped talks "can be wrapped up in the coming days and on the basis of this, Germany will make its decisions."
   
Greece must be rescued to stop the debt crisis spreading to other parts of the euro area, Germany's central bank chief said Thursday.
   
"Let me be clear -- aid for Greece as a last resort, is in my view the best way to avoid the crisis spreading to other member states and the euro area with extremely negative consequences," Axel Weber told the Bild daily.
   
Weber said the effects of letting Greece default were "incalculable" and stressed that expelling Athens from the euro area was "legally not possible."
   
Other countries have been quick to deny that they face the same problems as Greece, despite the downgrades for Portugal and Spain's credit rating.
   
Standard & Poor's lowered Spain's long-term credit rating to "AA" from "AA+" and said the outlook was negative, meaning there could be a further downgrade.
   
Spain, with an economy five times the size of Greece's, has sought to reassure investors.