Heavy budget cuts likely to jar Europe

GREECE has accepted it needs to make another €12 billion (NZ$19.1B) in cuts to avoid a third bailout as it draws up plans to recapitalise its banking system.

Prime Minister Lucas Papademos confirmed last week that details of the plan to shore up the banks would be announced on April 20, with the government potentially taking control of some banks.

He also said officials were preparing for further spending cuts in 2013-14, which could put the government on a collision course with unions.

The Greek plans are likely unsettle markets further.

Investors were unnerved last week by a lacklustre auction of Spanish government debt, which raised fresh fears Spain might have to follow Ireland, Greece and Portugal in asking for a bailout.

Markets were also disappointed by a poor United States employment report on Saturday.

It showed the American economy added only 121,000 jobs last month, confounding expectations of a 205,000 rise.

Elections in France on April 22 and in Greece early next month

to will only add to the uncertainty, with many analysts saying the eurozone is facing another crunch.

Greece has already written down €206b of debts, as part of the second bailout agreed with Europe and the International Monetary Fund last month, but this has left its banks with an estimated €32b hole in their balance sheets, which will require state support.

The country also has to find another €12b of cuts in 2013-14, if it is to meet the terms of the second bailout. This will be a tough challenge because Greece remains mired in recession.