The FINANCIAL — (LUXEMBOURG) –As EU Business web-site announces, Eurozone finance ministers Monday discuss whether to unlock vital loan aid for Greece as markets tumbled in Asia and Europe on a warning from Athens that it will miss budget deficit targets.
The 17 countries sharing the single currency gather from 1500 GMT to reach an understanding on whether Greece should get an eight-billion-euro loan, needed to pay next month's bills but blocked by the IMF for the past month.
They will also look at ways of boosting the euro's rescue fund, the EFSF, to help immunize Europe and the global economy from financial contagion.
In Athens, international auditors spent the weekend assessing Greek finances and forecasts following continuing protests over austerity cuts, including staff occupations of ministries.
But the mood darkened after the Athens government announced Sunday that its public deficit will come in at 8.5 percent of gross domestic product (GDP) this year, higher than the 7.4 percent agreed in June, as its economy is battered by recession, EU Business says.
The figure is still better than the 10.5 percent public deficit Greece recorded last year.
For next year the Greek government now forecasts it will be able to squeeze the public deficit down to 6.8 percent of GDP instead of 6.5 percent.
The changes sent Asian markets into a tailspin as fears heightened of a devastating debt default amid concerns over eurozone policymakers' ability to surmount the debt crisis.
Japanese stocks fell 1.78 percent as exporters tumbled while the euro fell against major counterparts.
Hong Kong shares fell 4.38 percent, while Sydney was off 2.78 percent at the close. Singapore was down 1.79 percent and Taipei slipped 2.93 percent. Markets in South Korea and China were closed.
"It is far from a given that policymakers will succeed in turning the tide in markets in the final quarter of the year," Sharon Zollner, senior economist at ANZ Bank in Wellington, told Dow Jones Newswires.
In Europe, increased expectations of a Greek default saw stock markets slump at the start of trading, with Frankfurt shedding more than 3.0 percent and London, Paris and Madrid dropping more than 2.0 percent.
In Luxembourg, European Union economic and monetary affairs commissioner Olli Rehn will give the eurozone finance ministers the inside track on what the Washington-based IMF wants to do.
Athens is labouring under a crushing 350 billion euros of debt, with its economy contracting under the austerity measures imposed by the EU and IMF.
The United States and other major economies are increasingly concerned that Europe is too divided to solve the Greek crisis or deal with problems in the much bigger Italian economy, notably by adequately re-capitalising banks that would lose heavily in the event of default, especially in France.
A ricochet effect could rip through global financial markets, already depressed as data increasingly point towards renewed recession.
Many are clamouring for a major boost in the firepower of the 440-billion-euro ($590 billion) European Financial Stability Facility (EFSF).
"Experts currently are pondering how to increase the EFSF's power through leverage or other measures," Austrian Finance Minister Maria Fekter said in an interview Monday in the German daily Die Welt.
One way would be to change the fund's rules, enabling it to morph into a bank able to leverage funds from the European Central Bank (ECB) in the event of a crisis.
Another possibility is to insure bondholders up to 20 to 25 percent of losses should a nation default.
Global pressure is on to resolve the problems before G20 leaders meet in Cannes on November 3-4.
US Treasury Secretary Timothy Geithner has already urged German Finance Minister Wolfgang Schaeuble to put more of Berlin's financial heft at the eurozone's disposal if things worsen.
But Schaeuble said at the weekend that the 211-billion-euro limit set for its exposure will not rise.
An immediate obstacle to overcome is final ratification of an agreement reached by eurozone leaders in July giving the EFSF the scope to intervene when sovereign governments get into cashflow difficulties.
As of Friday, 14 of the 17 eurozone countries had passed legislation the EU wants to be able to trumpet at a G20 finance ministers meeting in Paris on October 14-15.
The EU-IMF auditors returned to Athens on Thursday, four weeks after they abruptly left disappointed at Greece's lack of progress in implementing promised structural reform measures.
They pressed the government to undertake further austerity measures to reduce expenses and increase revenues.
Athens unveiled late on Sunday a plan to shrink its bulging civil service by 30,000 people by the end of the year.
Discussion about this post