Europe puts off Greece verdict, demands new belt-tightening

Luxembourg Prime Minister and Eurogroup President Jean-Claude Juncker

Eurozone chief Jean-Claude Juncker said a rescue fund to be used for a second Greek bailout, agreed in July but frozen with auditors now demanding a three-year rewrite of Athens spending plans, will be made more "efficient," although he refused to increase its size.

Greek Prime Minister George Papandreou, who only on Sunday announced deep cuts for 2012 in a bid to unblock promised EU and IMF funds, will now have to agree "additional measures" with international auditors "to close any remaining gaps for 2013 and 2014," Juncker said.

His comments came after seven hours of talks between eurozone finance ministers in Luxembourg.

The ministers had downplayed the chances of eight billion euros in loans originally set for September being re-activated, prompting Greek Finance Minister Evengelos Venizelos to suggest Athens was being made a "scapegoat" for wider eurozone debt troubles.

In the end Venizelos was sent back to the drawing board, with a demand to secure creditors' agreement on a new massive overhaul of the rapidly shrinking Greek economy, to enable a "definite and final decision" on the loan funding before the end of October.

Juncker said Athens does not now need the money which it previously said was required swiftly to avert a default that would send shivers up the spines of banks, governments needing to recapitalise their financial sectors and overseas economic rivals.

When Greek lawmakers last voted through a financial overhaul in the summer, central Athens ground to a standstill as protests degenerated into sometimes violent clashes with riot police firing tear gas.

However, this time Juncker is anticipating "rapid legislation and entry into force" of the overall package.

The Greek parliament is set to vote on the changes at the start of November.

Two of the litany of hold-ups to the resumption of Greek bailout transfers were removed, Juncker said.

These were: Slovakia dragging its heels in ratifying changes to the eurozone's rescue fund; and fall-out over a deal Finland struck directly with Athens to obtain cash collateral before handing over its share of loans.

Asked after talks with the Slovakian prime minister if he was confident Bratislava would not torpedo the vote, Juncker gave an emphatic "yes."

Only Malta and the Netherlands have still to rubber stamp a deal struck in July, though there appear to be no particular sticking points for those nations.

Meanwhile Klaus Regling, the head of the European Financial Stability Facility, will explore further ideas on how to ramp up the effectiveness of the 440-billion-euro rescue fund, after broad discussions about possible "leveraging," to multiply its firepower.

Greece's admission that it would not meet its fiscal deficit target this year had cast a shadow over the talks, roiled markets further and raised fresh doubt on the planned 160-billion EU-IMF bailout,the second multi-billion loan deal given to Athens.

The European Commission, the European Central Bank and the International Monetary Fund would not complete their report on the ground in Athens "before the end of the week," said Commission spokesman Amadeu Altafaj.

The euro hit its lowest point against the dollar since January at one point on Monday and stocks tumbled.

Some governments are worrying about how much they will have to give their banks in the event of a Greek default.

But Venizelos bristled at taking all of the blame for mistakes coming home to roost for eurozone banks.

"Greece is not the scapegoat of the euro area," he underlined, citing a cumulative recession over three years that has seen its economy shed 12 per cent of its value.

The Greek economy is expected to shrink 2.5 per cent this year, as the debt pile rises well above 350 billion euros.

The United States and other major economies want money to keep flowing into Athens, to avoid a default they fear could trigger global recession.

"Our experience shows that extremely tough fiscal adjustments only worsen stagnation, the loss of opportunities and unemployment," Brazil President Dilma Rousseff said Monday in Brussels, referring to the strategy adopted by bankrupt Latin American nations in the 1980s.

Global pressure is on to resolve the problems before G20 leaders meet in Cannes, France, on November 3-4, after a warm-up gathering of finance ministers in Paris on October 14-15.

En route to the Luxembourg talks, British finance minister George Osborne said the eurozone needed to boost its defensive firepower, needed to shore up its banks once more and ultimately "decide what they are going to do with Greece -- and stick to it."