Germany's call to expel euro zone casualties

Euro zone countries that run into financial trouble should be kicked out of the single currency, the German finance minister warns.

Euro zone countries that run into financial trouble should be kicked out of the single currency, the German finance minister warned yesterday. As EU ministers thrashed out a rescue package for debt-ridden Greece last night, Wolfgang Schaeuble spelt out Germany's tough stance in a move to restore confidence in the battered euro.

"We need stricter rules - that means, in an extreme emergency, having the possibility of removing from the euro area a country that does not get its finances in order," he said in the German newspaper Bild. Mr Schaeuble also reiterated the need for a European Monetary Fund (EMF) and said the rules governing the 16-nation euro bloc were not sufficient for the current crisis facing the single currency club.

"We need the EMF because we need stricter rules," he said. "The euro stability pact is not enough. At the time, no one thought of the possibility that a euro country could become insolvent." The monetary crisis has caused severe strain for the euro zone and forced the Greek government to announce enormous budget cuts and reforms to its economy. Yesterday, a new wave of tax increases was brought in, raising the cost of consumer goods despite recession and high unemployment.

The embattled government has increased the main sales tax from 19 to 21 per cent, as part of a ?16 billion (Dh80.53bn) austerity package intended to cut the budget deficit by almost a third this year. The tax increases raised the cost of fuel and most consumer goods and services, although many retailers have said they will try to minimise the effect on consumers. Vangelis Tangalos, a greengrocer in central Athens, said the increase would further damage weak sales.

"We're already 30 to 40 per cent down," he said. "Now, with the increase, there will be even more of an effect." Greece presented the first results of its austerity measures at the EU ministerial meetings yesterday, and made it clear the country was looking for political rather than financial backing to pull through a crisis that has hammered Europe's common currency and alarmed global markets. During the past three weeks, Greece has come under intense pressure from its EU partners to reduce its massive budget deficit, which hit 12.7 per cent of economic output last year, and reduce a ?218bn debt mountain. Austerity measures, which involve civil service wage cuts and freezes on recruitment and pensions, have sparked national strikes.

Members of Greece's militant power workers' union, Genop, staged a series of protests around the country yesterday as they prepared for a two-day strike to protest against the latest tax increases. The action could lead to rolling blackouts around the country if Genop strikers leave the power plants short-staffed, a tactic the union has followed in the past. Greek nurses are also due to hold a 24-hour strike today, while on Thursday owners of petrol stations are planning to close forecourts.

"There is an all-out war against public servants, those who earn the least," said Spyros Papaspyros, the president of ADEDY, an umbrella union for public-sector workers. "We will fight to keep the little we have. The government and the EU must understand the crisis must be paid by the rich." It is against this backdrop that finance ministers from the euro zone were last night trying to agree on financial aid for Greece, although the French economy minister Christine Lagarde said she did not expect a figure to be announced.

"I'm certainly not expecting any decision being made, or any button being pressed, or any button being selected to be pressed, because it's totally premature," she said. But investors fear that Greece will be unable to tame Europe's largest deficit on its own. "The hope seems to be 'we'll let the Greeks take measures and hope the problem will go away'," said Andre Sapir, an economics professor at the Universite Libre de Bruxelles. "That is not a very reasonable view of the world. It does look likely that indeed Greece will need some resources."

* with agencies