Eurozone struggles with Greece amid default fears

October 3, 2011 - 8:20 AM

LUXEMBURG (AP) — Top financial officials from eurozone countries were grappling with Greece's worsening debt crisis on Monday after Athens' admission that its deficit will be higher than promised sent markets tumbling.

Greece's revelation calls into question whether Athens will receive the next installment of the bailout loan it needs to pay its day-to-day bills. If it doesn't receive euro8 billion ($10.8 billion) by mid-October, it could go bankrupt and would be unable to pay pensions and salaries.

European Monetary Affairs Commissioner Olli Rehn wouldn't be drawn out Monday on what Greece's creditors will do with the new information, saying only that they were still reviewing the data.

"We are currently assessing whether Greece will meet its fiscal targets with the current measures," Rehn said ahead of Monday's meeting. "I want to do our job first properly; it seems that Greece is likely to miss the target."

Although the ministers have already said they won't decide on the next payment at their meeting Monday in Luxembourg, the issue is sure to be high on the agenda.

Markets have been exceptionally volatile in recent weeks, as they look for any hint that European leaders have a credible way to steer Greece back to health and prevent its debt problems from spreading to other, larger eurozone economies. The Greek announcement confirmed investors' fears that even the country's dramatic spending cuts will not be enough.

Greece's finance ministry said Sunday that the country will run a deficit of 8.5 percent of economic output, or euro18.69 billion ($25.2 billion), this year — far above the promised euro17.1 billion ($23.1 billion), which would have been 7.8 percent of GDP.

Part of the problem is that since Greece's economy is shrinking, the government is taking in less and less money. That in turn means it has to cut even more to reduce the size of its deficit and make a dent in its debts.

In 2012, Athens' debts are projected to reach 172.7 percent of gross domestic product, while the deficit will drop to 6.8 percent.

The announcement will also force the eurozone to decide whether they will go ahead with a second euro109 billion rescue package tentatively agreed in July. Germany, among others, has been pushing to reopen that deal.