On their own

Finance Minister George Papaconstantinou said the government would do "whatever is required" to regain lost confidence. He repeated a pledge to reduce the country's budget deficit from an expected 12.7 percent of the 2008 Gross Domestic Product to 9.1 percent in 2010.

But shortly after he finished his speech to journalists on Wednesday, the Fitch rating agency dealt another blow, putting all of the structured financial deals rated in Greece under negative watch. That means global funds could withdraw their investments in favor of a better-rated country. It is the first time in ten years that the country's bonds have been below investment grade.

Greek stocks fell precipitously for a second day, down 3.36 percent after a 6.04 percent fall on Tuesday.

National debt in Greece is estimated to hit 125 percent of GDP next year - the highest among all countries using the euro. Its credit ranking is the lowest in the euro zone.

Greece's key industries are tourism and shipping, two sectors that have been hammered by the economic downturn. A badly needed overhaul of the social security and pension systems in 2008 fell short amid popular protest. And revised government figures show that the outgoing conservative government drastically under-reported large deficits.

Putting a bloated budget on a diet

Late on Tuesday, EU Economic and Monetary Affairs Commissioner Joaquin Alumnia said in a statement that the union was monitoring Greece closely, and that "more measures are required" than what had currently been offered in the country's 2010 draft budget.

French Finance Minister Christine Lagarde said she didn't think the country would go bankrupt, but added that it needed "a real, efficient plan to rebalance and rework public finances. We all expect [Papaconstantinou] to do it, he has made commitments with us and of course he has to keep them."

The financial world is hoping that Greece takes on Ireland and Britain, which have implemented severe and wide-reaching budget cuts, as role models.

"Ireland is an example of what Greece should be doing, really," Fitch Ratings Senior Director Paul Rawkins told Reuters Insider. "Ireland continues to address its situation very aggressively."

EU offers encouragement, but no bailout

The finance minister of Sweden, which currently holds the rotating EU presidency, said "there is no legal basis" for an EU bailout of Greece.

"The European treaty even explicitly forbids EU member states from transferring their debts to others, and we should stick to that," Anders Borg told the German daily Handelsblatt.

Borg said that Greece's public spending was out of control before the downturn. He called the anticipated and sudden restructuring something "that simply should not happen in a well-organized country."

German government advisor Clemens Fuest told Reuters on Wednesday that Greece should not rely on its common ties within the European Union for help.

"Then the results would be catastrophic: the German taxpayers would be held liable for households over which they have absolutely no control," said Fuest.

Fuest, an Oxford-trained economics professor, said Greece must take responsibility for itself, but Europe can help provide the justification for pushing through unpopular restructuring policies.

"That would give the restructuring outside legitimacy," said Fuest. "Greece can put through these strict measures if they are compelled to by those in the euro zone."

"We are not Iceland"

But Papaconstantinou said Greece was working on radical reforms to bring its budget in line.

"We are not waiting for anyone to save us," Papaconstantinou said. "We are not a new Iceland, just like we are not the new Dubai."

The Socialist government elected in October campaigned on a platform of increasing spending on programs to help the poor and boosting the economy. The public sector spending cuts being demanded by global financial officials could put the government on a collision course with the country's powerful civil service unions and with a constituency that wants the government to aid citizens hard hit by the economic downturn.

Greek Prime Minister George Papandreou said that the country's financial crisis was a threat to its sovereignty.

"We are determined to do whatever is necessary to check the huge deficit, to restore stability in public finances, to promote development," Papandreou told his cabinet. "It is the only way to ensure that Greece does not lose its sovereign rights."

svs/Reuters/AFP/dpa
Editor: Susan Houlton