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Greece, troika disagree over deficit

By Gabriele Steinhauser

Associated Press

Published: Friday, Sept. 2 2011 8:16 a.m. MDT

Greek finance minister Evangelos Venizelos gestures as he addresses the media during a press conference on the state of the Greek economy in Athens on Friday, Sept. 2, 2011. Venizelos rejected reports that the country's international debt review has been suspended due to a break-down in talks, saying the pause was scheduled and insisted the government would not impose any additional revenue-generating measures beyond what had already been agreed and voted on in Parliament as part of conditions for Greece's bailout. The finance minister said the country is in a deeper recession than originally forecast _ he estimated the economic contraction will be "very close" to 5 percent this year.

Kostas Tsironis, Associated Press

BRUSSELS — Disagreements over Greece's massive budget deficits and how to make up for the funding shortfalls led international debt inspectors to suspend their review and leave Athens on Friday, as the finance minister warned an even deeper recession will hurt its deficit-cutting efforts.

The unexpected departure of Greece's debt inspectors — officials from the European Commission, the European Central Bank and the International Monetary Fund — marks yet another occasion of conflict between international institutions demanding greater reform efforts and a government and country that are reaching their limits.

Greek Finance Minister Evangelos Venizelos, who denied there were any serious disagreements, said Greece's economy will likely shrink up to 5 percent this year — even more than the 4.5 percent decline seen in 2010 and far above the 3.75 percent drop in 2011 output expected just three months ago.

A return to growth next year also looks increasingly unlikely, Venizelos warned.

The ever worsening recession will make it harder for Greece to cut its budget deficit to 7.5 percent of gross domestic product by the end of this year, as it had promised in return for the bailout loans it needs to avoid bankruptcy.

Greece has been slashing spending and raising taxes since the government discovered in late 2009 that it was running a much larger deficit than its predecessors had claimed — some 15.4 percent of economic output — and that it had run up almost €300 billion in debt.

As Venizelos prepared his nation for even more economic pain in a news conference Friday, the finance minister vowed that there will be no further "revenue generating measures," government jargon for tax increases.

"The main thing for us is to halt the recession," Venizelos told journalists. "To not have actions or omissions that will make the recession deeper and will not allow us in 2012 to have a better macroeconomic performance."

Venizelos said the departure of the so-called troika had been foreseen and that the experts would return in less than two weeks, once the government had finished its draft budget for 2012.

The talks "were conducted and are being conducted in a very friendly and creative climate," Venizelos added.

But a European Unions official told the Associated Press that the interruption of the troika's mission was unplanned and that it came amid disagreements over the level of Greece's deficit in 2011 and 2012 and how to deal with those budget shortfalls.

The mission had been expected to conclude early next week, the official said. He was speaking on condition of anonymity because of the sensitivity of the issue.

Greece was granted a €110 billion ($157 billion) bailout from other eurozone countries and the IMF in May 2010 and has been promised an extra €109 billion to keep it afloat until mid-2014.

Since then, the EU, the ECB and the IMF have been checking on the country's reform efforts every three months, adjusting their economic projections and demanding more cuts to make up for shortfalls.

Their departure Friday brought back memories of a similar incident during their most recent mission in June, when the troika left Athens and only returned weeks later, after Greece's parliament passed an extra €28 billion in cuts and a €50 billion privatization plan.

But it is unclear whether there is room for even more efforts this time.

Greece's troubles are being worsened by a slowing global economy, with growth tapering off even in strong countries like Germany and the U.S.

Venizelos said Greece's deficit targets have to be adjusted for the worse-than-expected recession, since much of the economic decline is outside the country's control.

The finance ministry declined to release new projections for its 2011 deficit, but press reports have put the figure above 8 percent. The troika, meanwhile, insists that the technical adjustment for the steeper recession would raise the target only to about 7.7 percent from 7.5 percent currently.

Greece has been struggling to meet its targets, particularly those for revenue, not only because of poor economic growth but also because tax evasion remains rampant and it has been slow to implement reforms its creditors say will make it more competitive.

In a statement Friday, the troika said it "temporarily left Athens to allow the authorities to complete technical work, among other things, related to the 2012 budget and growth-enhancing structural reforms," adding that it plans to return by mid-September.

That leaves little time for the troika to complete its final report before Greece has to receive its next aid installment, some €8 billion, at the end of September.

Eurozone nations are also struggling to finalize the terms of the second Greek aid package. A demand from Finland to get collateral for its contributions to the rescue loans has angered other countries, while Greece has threatened to abandon a crucial bond swap deal for private investors unless it gets 90 percent participation.

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Elena Becatoros in Athens contributed to this story.

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