EU endorses Greek deficit plans; urges more action

The European Commission endorsed on Wednesday a Greek plan to cut its budget deficit below three percent of GDP by the end of 2012, but said it must take further steps to cut public sector wages and put finances in order.

In an assessment closely watched by financial markets weighing up Greece's credibility as a debtor, the European Union executive said Athens must submit an interim report on its deficit reduction progress by mid-March.

It said the plan would not be easy to implement but Greece must be ready to make further deep fiscal adjustments.

"Greece has adopted an ambitious programme to correct its fiscal imbalances and to reform its economy," EU Economic and Monetary Affairs Commissioner Joaquin Almunia said.

The EU executive recommended that Greece adopt a "comprehensive structural reform package aimed at increasing the effectiveness of the public administration, stepping up pension and healthcare reform, improving labour market functioning and the effectiveness of the wage bargaining system."

It also told Greece that it should set aside 10 percent of current expenditure to create a contingency reserve in case of future budgetary pressures.

The Commission's recommendations on what Greece should do were broadly in line with promises made by Athens in its long-term austerity plan, which forecasts a gap of 2.8 percent in 2012, down from 12.7 percent in 2009.