Although Greek Finance Minister Evangelos Venizelos denied it, talks over Greece's second bailout were suspended Friday when officials from the International Monetary Fund, the European Central Bank and the European Union could not agree with Athens over why the country's deficit cut targets have not been met.
Without achievement of those goals, the next tranche of funding in the package could be held up.
Officials from the IMF/ECB/EU believe that Greece is not pushing hard enough on financial reforms that are a condition of its bailout, Reuters report. Athens, on the other hand, insists that its failure to meet targets is a result of a worse-than-expected recession that has driven its economy further into the hole.
The Greeks and bailout officials also cannot agree on the amount by which Greece has failed to meet its targets, with Athens perhaps predictably citing a lower figure than the international representatives.
A source close to the inspectors said the 2011 budget deficit would total at least 8.6% of gross domestic product; the target had been 7.6%, Reuters said. A Greek government official, however, was cited as saying that the deficit would be 8.1–8.2% of GDP.
The inspectors are also critical of Greece’s privatization measures and reform on both pensions and labor, saying they are insufficient in the debt battle. Venizelos, who said the country is not contemplating additional austerity measures, pointed to a 5% contraction in the country's economy as the cause for missed targets. Inspectors believe only a quarter of the budget gap is attributable to the recession.
Also in dispute is the very nature of the cessation in talks. While they have been put on hold, increasing the probability that they will not be completed by the IMF's original target date of Sept. 5, Venizelos said that a review will continue in the interim with technical experts reviewing the data. The talks will resume, he added, on Sept. 14.
But no interruption in the discussions had been planned, and the move is seen as the finance minister’s attempt to exert pressure on the Greek government to compel better compliance. Athens may now seek a political solution to the impasse, according to a report in the Greek daily Kathimerini.
Read PIMCO's El-Erian: World Debt Drama Just Beginning at AdvisorOne.com.