Talks stall as Greece, EU/IMF differ over deficit

Talks between Greece and international inspectors on whether it has met conditions for a new aid tranche have been put on hold, officials said on Friday, after disagreements over why and by how much its deficit cuts program has fallen behind schedule.

The pause in discussions – a clear sign of tension between the debt-choked nation and its EU/IMF/ECB troika of lenders that hit sentiment on European markets – had not been planned.

The International Monetary Fund had initially said it wanted to wrap things up by Sept 5.

Finance Minister Evangelos Venizelos said the talks had not been suspended and would resume on Sept 14, after technical experts had had a chance to study relevant data.

Structural reforms needed to be accelerated as Greece's economy would contract by around 5 percent this year and likely stay in recession in 2012, too, affecting its ability to hit its fiscal targets, he told a news conference.

The government and its international lenders said on Thursday that Greece would miss this year's budget deficit target, but they disagreed on how big the slippage would be and what was to blame.

Shares in Greek banks fell as much as 7.3 percent on Friday after news of the deficit miss and the pause in talks, underperforming modest declines on European markets. Spreads on peripheral euro zone debt widened against benchmark Bunds.

The EU/IMF inspectors visiting Athens feel Greece is not pursuing reforms vigorously enough – and have in particular criticized the lack of progress on privatizations and on labor and pension reforms – while Greek officials cite the worse-than-expected recession as the main culprit.

Venizelos said Greece was not currently considering introducing extra austerity measures.