Business, Finance & Economics

Europe delays decision on next Greek payout


Greek Prime Minister George Papandreou prepares to speak at a convention of the Federation of German Industry (BDI) to appeal for more German investment in Greece on September 27, 2011 in Berlin, Germany.


Sean Gallup

ATHENS, Greece — Euro zone finance ministers have put off a decision on giving Greece its next installment of bailout cash, after Athens said it would not meet this year's deficit cutting plan.

Finance ministers had been expected to sign off on the next Greek loan at a meeting scheduled for 13 October, but the BBC reported this meeting has now been canceled.

The aid in question is an $11 billion installment of a $150 billion loan from European partners and the International Monetary Fund, initially negotiated in May 2010. A second loan of the same size was agreed to in June but is awaiting ratification.

If the $11 billion is not made available by mid-November, Greece says it will be unable to pay its bills, possibly leading to a disorderly default that could shake the global economy.

(Read More on GlobalPost: Greece turmoil triggers market panic)

European stocks dipped sharply on the news, with French shares down 3.3 percent, German stocks off 3.2 percent, and Britain's FTSE down by 2.4 percent in mid-day trading. U.S. markets also dropped on Tuesday, with Morgan Stanley dropping 1.6 percent, after closing at its lowest since December 2008 on Monday, reports Reuters.

Banking stocks were reportedly the biggest hit, as a result of their exposure to Greek government bonds. The euro fell to a 10-year low against the yen and a nine-month low against the dollar.

In Asia, Hong Kong and Seoul's markets were both down 3.5 percent Tuesday. 

Worldwide, stocks have fallen to a 15-month low, the New York Times reports. Goldman Sachs said it now expects the euro zone to experience a "mild recession," reports the Wall Street Journal and U.S. Federal Reserve Chariman Ben Bernanke will testify to U.S. Congress's Joint Economic Committee on the economic outlook.

(Read more on GlobalPost: Greece says "Don't blame us" for Europe's woes)

The bailout decision — which came early on Tuesday after a sovereign debt meeting of finance ministers in Luxembourg — means that Greece may not receive its next loan installment of 8bn euros ($10.9bn) until November.

Eurogroup chairman Jean-Claude Juncker said Greece would be able to meet its financial obligations as long as it received the next tranche of money in November.

Juncker denied rumors that some euro zone members had been pushing for Greece to be allowed to default, and that this was the only way to move past the debt crisis.

Al Jazeera's correspondent in Luxembourg, Jacky Rowland, said Greece would have a tough time convincing finance ministers to continue with the bailout.

"The question that the European finance ministers are asking themselves is whether Greece is a basket case."

But even though the finance ministers could not reach an agreement on the Greek payout, they did strike a deal to allow Finland to receive collateral as security for its contribution towards the euro zone bailout fund.

Meanwhile, hundreds of thousands of public sector workers, 30,000 of whom are slated for layoffs as part of the government's austerity measures, begin a 24-hour general strike Wednesday that will close airports, offices and schools. Greeks weary of transit strikes and demonstrations — as well as cuts to pensions and salaries — say they can't take much more.

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