Greece vows to bounce back

Athens - Greece will follow its fiscal rescue plan "to the letter", Prime Minister George Papandreou promised on Tuesday in response to European Union plans to tightly monitor Athens' performance and possibly demand more cutbacks.

Worries that Greece won't be able to pay back its growing debts have shaken the European Union and the shared euro currency. The European Commission said on Monday it will demand tougher measures such as new taxes and cutbacks in public sector wages and spending if Greece doesn't make progress in getting the deficit under control.

"We are determined to implement the stability and development programme to the letter - in a stable and insistent way," Papandreou told a financial conference in Athens.

"For the first time, our country must do so much in so little time. But for the first time, we are so determined."

Papandreou's new Socialist government is aiming to bring Greece's ballooning deficit down from an estimated 12.7% of gross domestic product last year to 2% by 2013.

However, he has resisted pressure from the EU to impose the sort of drastic spending cuts taken by fellow eurozone member Ireland that include civil service pay cuts. That is because lower wages would hurt consumer spending, crimping economic growth in the future

'It seems very foolish'

"Over the next three years, Greece will correct its mistakes," Papandreou said. "But without efforts to support economic growth, the fiscal adjustment will not be sustainable."

Greece's Socialists sharply revised the deficit upward after ousting the conservative in general elections last October.

Joseph Stiglitz, a Nobel Prize-winning economist, said that the EU should reward Greek efforts to come clean. "The reaction to punish this government because of mistakes by the previous government makes absolutely no sense. It seems very foolish," he said.

Stiglitz said small countries in particular needed support. "I think there needs to be a greater effort within Europe to create to the kind of solidarity that would enable Europe to address the kinds of macro instability crises that we are now experiencing," said Stiglitz, a professor at Columbia University.

"Any small country within Europe can't do it on its own. This really has to be done by a commitment in Europe in an overall economic framework."

Stiglitz was also critical about the tougher cutbacks taken in Ireland.

"The kinds of policies that Ireland pursued - pouring money into banks and not getting back the appropriate amount of money - ... and cross-the-board wage cuts in the public sector have not succeeded in improving significantly its economy or even market perceptions."

- AP