International negotiators unexpectedly halted talks meant to release the next round of emergency loans to Greece as the country’s increasingly complex bailout program threatened to founder on several fronts.
Greece’s recession is deepening, and Finance Minister Evangelos Venizelos said at a news conference in Athens on Friday that it may last through next year — despite forecasts from the International Monetary Fund and others that growth would resume. As a result, the country may miss the targets for lowering government deficits included in a joint IMF and European Union bailout.
While Venizelos, according to wire service reports, said the emerging budget gap could be met without more spending cuts or tax increases, IMF and European officials broke off the talks while Greek officials work on their budget for next year.
The group had hoped to complete its latest review of Greece by Sept. 5, in time to disburse more than $10 billion slated to go to the country later this month. The IMF said the talks should resume in mid-September.
Europe is also debating the longer-term rescue program for Greece that was approved by European leaders in July. That program, the successor to an earlier IMF-backed program that proved inadequate, would provide $145 billion in help to the country over the next three years.
But it must still be approved by legislatures in the 17-nation euro zone, and that process has been complicated. Finland has demanded that Greece post collateral for its emergency loans, and some German lawmakers want to get more say over future bailouts.
Finland’s demand has caused division among the nations in the euro currency zone, with some saying they want similar protection if Finland succeeds and others opposing the idea altogether.
In a report Friday, the IMF cautioned that Greece’s problems remain a potentially global threat.
The study analyzed how problems in large economies such as the United States, Europe and China might spill over into the global system. In the case of the euro area, the report said the possibility that Greece’s problems could hurt banks in France, Germany and elsewhere that have invested in the country could have a broad impact.
If Greece’s stress “were to cast doubt on the soundness of core [euro area] banks, the spillovers to the rest of the world would be large,” the IMF concluded, “in many cases as large as after Lehman,” a reference to the 2008 collapse of Lehman Brothers, the largest victim of the U.S. subprime mortgage disaster, which helped trigger a financial crisis around the globe.
Schneider reported this story from Dublin.