The euro zone's financial chiefs remain under pressure to find new ways to relieve Greece's debt crisis, after Athens acknowledged that its deficit will be higher than it had promised in return for a massive bail-out.
Greece's revelation calls into question whether Athens will receive the next installment of a bail-out loan it needs to pay its day-to-day bills. If it doesn't receive the €8 billion slice by mid-October, the debt-ridden country will be unable to pay pensions and salaries and eventually go bankrupt.
The admission also casts a shadow over a second, €109 billion bail-out tentatively agreed in July, when it became clear that the initial €110 billion rescue package would not be enough.
Germany and several other countries have been pushing to impose larger losses on banks holding Greek bonds as part of the second bailout, since a sharp recession is eating away at Greece's debt reduction efforts.
But countries with banks that have a large exposure to Greece, such as France, have been reluctant to consider such an option.
Amid the disagreements, officials arriving for a meeting in Luxembourg quickly sought to lower expectations. "We won't take a decision today on the next tranche for Greece today," said Luxembourg Prime Minister Jean-Claude Juncker, who chairs the finance ministers' meetings.
European Monetary Affairs Commissioner Olli Rehn also wouldn't be drawn out on what Greece's rescue creditors will do with the new information out of Athens.
"We are currently assessing whether Greece will meet its fiscal targets with the current measures," Rehn said ahead of Monday's meeting. "I want to do our job first properly."
German Finance Minister Wolfgang Schaeuble - whose country is the euro zone's largest economy and has been very strict on the budget targets - did little to reassure investors, saying that ministers would wait for a report from Greece's debt inspectors before taking any decisions.
That position was not popular with all of his colleagues, especially those from countries that risk being hurt by a Greek default.
"With every day that passes we send negative signals. We lose time, and also a lot of options," said Belgian Finance Minister Didier Reynders. Reynders said he hoped that ministers would decide in the coming days to transfer the money to Greece, citing the country's efforts over the past year.
Shares in Franco-Belgian bank Dexia tumbled 10% today after ratings agency Moody's warned its may soon downgrade the lender's creditworthiness.
Dexia, like several large French banks, has faced market pressure in recent weeks amid worries over its exposure to Greece. Reynders said both France and Belgium were standing behind their banks.
Officials sought to present today's meeting of euro zone finance minsters as a pit stop in the negotiations toward a broader solution to the euro zone's debt crisis.
Besides Greece, the ministers will also discuss technical options to increase the firepower of their €440 billion bail-out fund - the European Financial Stability Facility - without having to raise their financial commitments.
Most analysts agree that the EFSF is currently too small to effectively stop the crisis from spreading to large economies like Italy and Spain if market pressures increase.
"We are reviewing options of optimising the use of the EFSF in order to have more out of it and make it more effective as a firewall to contain contagion," said Rehn.
Meanwhile, Greek Finance Minister Evangelos Venizelos insisted that his country was making progress on its debts and promised that it had the ability to pull itself out of its debt hole.
"Greece is a country with structural difficulties, but Greece is not the scapegoat of the eurozone," he said as he headed into today's meeting. "We have the possibility and the capability to go ahead despite a deep recession."
Greek problems won't have negative impact here
Finance Minister Michael Noonan has said he does not believe that the failure of the Greek government to reach its deficit reduction target will have
a negative impact on Ireland.
Speaking in Luxembourg, Mr Noonan said that Ireland was not Greece. He said this fact was understood in the markets and that he did not believe there would be any cross-over.
The Finance Minister said he did not expect that a decision would be taken tonight on the release of €8 billion in aid to Greece, because inspectors from the EU and IMF were still working in Athens. However, he added that he understood progress was being made on the issue.
Greek economy to remain in recession
Greece's economy will remain in recession next year, causing it to miss its original deficit reduction targets, figures in the draft budget for 2012 showed today.
Greece's debts are projected to reach 172.7% of gross domestic product in 2012 while the deficit will drop to 6.8%, above the 6.5% originally agreed with international bail-out creditors.
The government said, however, that it will finally post a primary surplus - growth before interest payments on outstanding debts are taken into account - of €3.2 billion, or 1.5% of GDP.
Greece relies on regular payouts from a €110 billion bail-out from other euro zone countries and the International Monetary Fund, and was granted a second, €109 billion bail-out in July, although the details of the latter remain to be worked out.
Debt inspectors from the IMF, European Central Bank and European Commission, known as the troika, are in Athens reviewing reforms to see if Athens qualifies to receive the next €8 billion installment of its bailout. Without it, Greece will run out of funds in mid-October.
The troika had suspended its review in early September over talk of missed targets and delayed implementation of reforms, and the government announced new austerity measures in the last few weeks, including pension cuts and extra taxes on property.
The 2012 draft budget "is within the framework which has been agreed with the troika and is supported by the package of measures which have already been decided on and announced" and which will be voted on by the end of the month in Parliament, Finance Minister Evangelos Venizelos said in a statement.
"The 2012 budget completes a dense and difficult effort of fiscal adjustment which, from a primary deficit of €24 billion in 2009, reaches a primary surplus of €3.2 billion in 2012," he said.
Next year's budget also covers a 0.7% of GDP gap in this year's budget, which the government attributes to a recession that will reach 5.5% of GDP this year, instead of the 3.8% the economy had been forecast to contract by.
Most European stock markets closed lower this evening after Greece said it would not meet a target for reducing its massive deficit.
Shares in London closed 1% lower, while shares in Frankfurt fell 2.3% and the market in Paris was down 1.85%. The Dublin market reversed its earlier losses to close 0.6% higher.
