Eurozone delays decision on next Greek payout

What now for Greece?

Eurozone finance ministers have delayed making a decision on giving Greece its next instalment of bailout cash, sending European shares down sharply.

It came after Greece said it would not meet this year's deficit cutting plan.

A meeting set for 13 October, when finance ministers had been expected to sign off the next Greek loan, has now been cancelled, says BBC Europe correspondent Chris Morris.

French shares fell 3.3%, German stocks by 3.2%, and the UK's FTSE by 2.4%.

As a result of the decision by finance ministers, Greece may not get its next loan tranche until November.

Greece has previously said it needed the money by mid-October to avoid defaulting on its loans, but Eurogroup chairman Jean-Claude Juncker said at a meeting of finance ministers in Luxembourg that the country would be able to meet its financial obligations as long as it received the next 8bn-euro (£6.9bn; $10.9bn) tranche of money in November.

Mr Juncker also ruled out the possibility of a debt default by Greece - denying rumours that some countries, including Germany, had been pushing for this.

The meeting also appeared to reach a deal to let Finland receive collateral as security for its contribution towards the eurozone bailout fund - the European Financial Stability Facility.

The Finns had threatened to block further bailouts to Greece unless it received this special arrangement.

A situation in which a borrower renegotiates the terms of its debts, usually in order to reduce short-term debt repayments and to increase the amount of time it has to repay them. If lenders do not agree to the change in repayment terms, or if the restructuring results in an obvious loss to lenders, then it is generally considered a default by the borrower. However, restructurings can also occur through a voluntary debt swap, in which case it can be very hard to determine whether it counts as a default.
Glossary in full Banking stocks were again among the biggest fallers, due to concerns about their exposure to Greek government bonds.

In France, Societe Generale was 7% lower, while BNP Paribas had lost 6.3%, and Credit Agricole had fallen 5.9%.

German's Commerzbank was 5.7% lower, while in the UK Lloyds Banking Group had shed 4.2%.

Meanwhile, the Franco-Belgian bank Dexia, the bank the market judges most vulnerable to Greece, saw its shares tumble around a quarter to around 1 euro (86p).

On Monday, Athens announced that the 2011 deficit was projected to be 8.5% of GDP, down from 10.5% in 2010 but short of the 7.6% target set by the EU and IMF.

The government, which on Sunday adopted its 2012 draft austerity budget, blamed the shortfall on a worsening economy, which is expected to contract by 5.5% rather than the 3.8% forecast in May.

Inspectors from the International Monetary Fund (IMF), European Union (EU) and European Central Bank are currently in Athens to examine Greece's financial position.

'Unanimously approved'
 
The Greek finance ministry said on Sunday that its unpopular austerity measures would have to be adhered to.

It said: "Three critical months remain to finish 2011, and the final estimate of 8.5% of GDP deficit can be achieved if the state mechanism and citizens respond accordingly."

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It released figures for 2012's projected deficit, putting it at 6.8% of GDP, also short of the 6.5% target.

The data came as the government met to approve Greece's draft budget for next year.

The cabinet meeting also approved a measure to put 30,000 civil service staff on "labour reserve" by the end of the year.

This places them on partial pay with possible dismissal after a year.

This measure, along with other wage cuts and tax rises, have been part of a package intended to persuade the so called "troika" of the EU, IMF and ECB to continue with the bailouts.

The Greek austerity measures are hugely unpopular at home and have led to a wave of strikes and protests.

Many Greeks believe the austerity measures are strangling any chance of growth. BBC