Greece, troika disagree over deficit

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.