Greece admitted yesterday its budget targets were in trouble because of a deep recession, but denied there was a split with the EU and IMF over the release of funds.
An EU-IMF mission that left Athens prematurely yesterday said that “good progress” had been made on a fresh revamp of Greece’s finances, but that more time is needed to draft a new 2012 budget.
“The mission has made good progress, but has temporarily left Athens to allow the authorities to complete technical work, among other things, related to the 2012 budget and growth-enhancing structural reforms,” the European Union and International Monetary Fund said in a joint statement.
The experts, also from the European Central Bank, had been in Athens since Monday “discussing recent economic developments and reviewing policy implementation”, but their visit to the debt-hit eurozone state was cut short after a Greek public body warned the country’s debts had spun “out of control.”
Finance Minister Evangelos Venizelos admitted that Greece’s public deficit target for this year, a key condition for continued funding from the €110 billion EU-IMF bailout loan agreed last year.
Mr Venizelos said there was no truth to reports that talks between Greece and the troika had stalled or that credit lines to Athens were under threat.
He did, however, say that Greece preferred to borrow rescue funds on terms agreed in the second bailout in July rather than under rescue terms agreed in 2010.
The latest issue over Greek debt is a factor undermining European stock markets, many of which fell sharply on yesterday, and comes as eurozone states are still wrestling with thrashing out the details and approving the €159 billion bailout.
Greek media have been speculating the deficit target would be raised to 8.8 per cent of gross domestic product from 7.4 per cent, but the minister refused to set a new figure until mid-September following talks with the EU and IMF about the release of further funds the first bailout.
He said it was important, however, that the public deficit come in at the agreed amount for the year of €16.68 billion.
The slowing economy has complicated the government’s efforts to squeeze down the public deficit. At the end of July the deficit had already hit €15.5 billion or 7.4 per cent of output.
Mr Venizelos said the Greek economy was likely to contract this year by nearly five percent as opposed to the 3.5 per cent forecast at the beginning of the year.
Greece has been imposing austerity measures as part of its bailout programme, which has aggravated the economic slowdown.
The talk of a rift between Greece and its creditors followed a furore over a report by a Greek budgetary watchdog which warned that the country’s massive debt was “out of control”.
On Thursday, the head of the newly-formed State Budget Execution Monitoring Office submitted her resignation to Parliament after strong criticism from the Finance Minister, who accused the agency of irresponsibility for releasing the report.
The watchdog’s report warned that the dynamic of Greece’s enormous debt was “out of control” as the country was falling even further into recession.
It said that slippage on meeting deficit targets, exacerbated by the recession, threatened to cancel out the benefits of a new EU-IMF debt bailout.
Forex.com research director Kathleen Brookssaid that Greek problems were again “encroaching on investors’ attentions after reports surfaced that international debt inspectors have paused their review of Greece’s austerity reforms.
“The inspectors include the IMF, the EU and the ECB, and they are apparently pressing for faster reforms than Athens is currently enforcing.”