Stock markets around the world drop as indebted Greece says it will miss its deficit reduction target.
Whether they agree to give the struggling nation more cash depends in part on whether it meets a series of economic targets, including on deficit reduction.
The Greek government admitted the deficit this year would be 8.5 per cent of gross domestic product (GDP), above the 7.6 per cent target. The deficit target for 2012 is also likely to be missed.
The Greek government said it expects its economy to shrink by 5.5 per cent in 2011 and 2.5 per cent in 2012.
Greek Deputy Finance Minister Pantelis Oikonomou tried to play down the figures, saying the inspectors from the International Monetary Fund (IMF) and the EU had “essentially concluded” their discussions about the 8bn euros (£7bn) the country needs to avoid bankruptcy. But a source close to the talks said the negotiations had not ended yet.
Eurozone ministers will make a decision on 13 October after receiving a report from the inspectors. Without the money, Greece would not be able to pay government salaries and pensions in October. This would plunge the eurozone into crisis.
It’s not positive at all. Nikos Christodoulou, Merit Securities
Responding to the latest figures, Nikos Christodoulou, an analyst at Merit Securities in Athens, said: “It’s not positive at all. I think we should be close to our targets. However, this is not easy, as it has proved recently. I think tax evasion is a very big problem, the delays in market in reform of the public sector in Greece is a great problem, so I think that we need more help from the European Union.”
Markets across Europe and Asia fell, with bank shares among the hardest hit.
The key is Europe’s strongest economy, Germany, whose parliament voted on 30 September to extend the bailout fund – the European Financial Stability Facility (EFSF) – that has been set up to help countries with debt problems.
Greece is bankrupt. Michael Fuchs, Christian Democrat MP
“Greece is bankrupt,” said Michael Fuchs, a German MP from Chancellor Angela Merkel’s Christian Democrats. “Probably there is no other way for us other than to accept at least a 50 percent forgiveness of its debts.”
Greece has announced tough austerity measures to cut its deficit, but one unnamed eurozone official said further action was needed.
“We will be pressing the Greek finance minister to do some more tough talking about the implementation of reforms at home. Greece would be well advised not only to announce, but also to implement reforms,” he said.
Eurozone finance ministers are meeting in Luxembourg today to discuss the EFSF and the economic situation in Greece. EU Economic and Monetary Affairs Commissioner Olli Rehn said: “It is important that all member states meet their fiscal targets.”