Greece's Funding Under Threat

The European commission threatened yesterday to suspend development funds to Greece in response to Athens's admission that it had disguised the extent of the country's debts in order to join the euro.

The warning came hours before the Greek finance minister, George Alogoskoufis, sought to assuage Brussels by promising to trim the budget deficit. Presenting a draft version of the 2005 budget to parliament, Mr Alogoskoufis said it would be easier to put Greece's economic house in order because spending on the Olympics no longer needed to be included.

Greece is believed to have spent at least €7bn (£4.8bn) hosting the games, nearly double the original budget.

Mr Alogoskoufis said the centre-right government's aim was to bring the deficit within permitted EU limits by lowering it to beneath 3% of GDP.

Revised figures released by Mr Alogoskoufis last week revealed that Greece's deficit averaged 4% from the time it joined the single currency in January 2001, rather than the 2% indicated by the former Socialist administration. Had Athens made it known that budget deficit calculations were out by billions of euros, it might not have been allowed to adopt the euro.

Last week Eurostat, the EU's statistics office, announced it was considering legal action against Athens. Jean-Claude Trichet, president of the European Central Bank, said Greece's creative accountancy posed an "enormous problem".

Commission officials said they feared the consequences of Greece's admission for the union's 10 new members, which, with the exception of Cyprus, are struggling to keep up with tough fiscal rules.

Greece is eligible for €563m in EU funds this year. The money, earmarked mostly for transport and environmental projects, is aimed at bringing the country into line with much richer EU states.