Eurozone delays Greek loan choice

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4 October 2011 Last updated at 00:06 GMT Continue reading the main story Last Updated at 05:00 GMT

Market indexCurrent valueTrendVariation% variationEurozone finance ministers have delayed a decision on giving Greece the next instalment of bailout cash.

It came after Greece said it would not meet this year's deficit cutting target, sparking a sharp sell-off in stock markets.

However Eurogroup chairman Jean-Claude Juncker said Greece would not be allowed to default on its debts.

The next 8bn-euro (￡6.9bn; $10.9bn) tranche of cash needs to be released by mid-November.

The finance ministers, meeting in Luxembourg, also appeared to have reached a deal to let Finland receive collateral as security for its contribution towards the eurozone bailout fund - the European Financial Stability Fund.

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

'No default'

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 deepening recession.

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Equity and debt markets haven't imploded today, but my goodness bankers are feeling jumpy.”

End Quote Robert Peston Business editor, BBC News Inspectors from the International Monetary Fund (IMF), European Union (EU) and European Central Bank are currently in Athens to examine Greece's financial position.

A further eurozone meeting on 13 October will make a decision on whether additional steps by Greece to balance its budget are sufficient.

That would then lead to a "definite and final decision in the course of October", according to Eurogroup chairman Jean-Claude Juncker.

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.

However, without the further bailout money, Greece may have little choice but to stop repaying its debts - something that would put severe pressure on the eurozone, damage European bank finances and possibly have a serious knock-on effect on the world economy.

Continue reading the main story Use the dropdown for easy-to-understand explanations of key financial terms:AAA-rating GO The best credit rating that can be given to a borrower's debts, indicating that the risk of borrowing defaulting is miniscule.Meanwhile, emergency talks over the future of Franco-Belgian bank Dexia added to market fears that a Greek default could spark a banking crisis.

The bank's board called an emergency meeting late on Monday as rating agency Moody's announced it was reviewing the bank's credit rating for a downgrade because of its exposure to Greek debt.

After the meeting, the bank said it would 'resolve the structural problems' that are exacerbating concerns over how it will deal with any type of default by Greece.

The Belgian finance minister Didier Reynders said Belgium and France would 'step in if necessary' to support Dexia.

Bank stocks

The UK's FTSE 100 lost 1% by the close of trading on Monday, French shares fell 1.9%, and German stocks shed 2.3%.

The sell-off continued into New York trading hours, with the Dow Jones Industrial Average ending the day 2.4% lower.

US markets are now right at the bottom of the 10% range within which they have swung violently up and down for the last two months.

Banking stocks were also among the biggest fallers on both sides of the Atlantic.

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Until we get a bigger and better package coming through [from eurozone leaders] trading will remain volatile”

End Quote Alec Letchfield HSBC Asset Management In Europe, Dexia initially fell as much as 14%, but recovered to be only 10.1% down by the close of European trading, while France's Societe Generale was down 5.2%, and Germany's Commerzbank fell 7.3%.

In the US, the banks seen as most at risk from a renewed global financial crisis fell sharply, with Citigroup down 9.8%, Bank of America 9.6% and Morgan Stanley 7.7%.

Industrial stocks - which are most exposed to any renewed economic downturn - were also among the worst hit.

Analyst Alec Letchfield, chief investment officer at HSBC Asset Management, said markets would remain turbulent until eurozone leaders tackled the debt problem.

"Until we get a bigger and better package coming through trading will remain volatile," he said.

In the currency markets, the euro fell sharply, down 1.4% against the dollar in late trading, and dropping 2% to a decade low of 101 yen against the safe-haven Japanese currency.

'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."

Continue reading the main story 3 Oct: Original deadline for Greece to receive next 8bn-euro tranche of bailout funds;Next few days: Troika decides whether to recommend that Greece gets the next tranche;9 Oct: Leaders of Germany and France to hold talks;13 Oct: European authorities due to decide whether to release bailout money to Greece;14-15 Oct: G20 finance ministers meet in Paris;17 Oct: Slovakia votes on whether to expand the European Financial Stability Facility. Members of the coalition government have vowed to block expansion;17-18 Oct: European Union summit in Brussels;End of Oct: Greece to get next bailout money - assuming no more hurdles;3-4 Nov: G20 summit in Cannes, France. World leaders, including Barack Obama, want evidence that Europe have got control of debt crisis.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.

It blamed an economic contraction this year of 5.5% - rather than May's 3.8% estimate - for the failure to meet deficit targets.

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.

"The labour reserve measure was approved unanimously," one deputy minister told Reuters.

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.

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