(Updates with minister’s comments starting in second paragraph, two-year yield in third.)
Sept. 2 (Bloomberg) -- Greece’s deepening recession will probably scuttle its 2011 deficit targets and mean no growth next year, the country’s finance minister said, as European Union and International Monetary Fund officials suspended a review to allow Athens to work on measures to boost growth.
“It’s important we leave the eye of the cyclone,” Finance Minister Evangelos Venizelos told reporters in Athens today. “The recession was a major subject of our discussions and it will be bigger than our partners had forecast.”
He denied that talks with EU, IMF and European Central Bank officials who are in Athens to conduct their fifth quarterly review had collapsed. Concern about the discussions led Greece’s two-year note yield difference over similar-maturity German debt to widen 392 basis points, or 3.92 percentage points, to a euro- era record 46.2 percent at 11:21 a.m. in London.
The troika’s support is key to Greece receiving a sixth payment of loans under a 110 billion-euro ($157 billion) bailout approved in May 2010. Euro-region leaders endorsed a new Greek bailout on July 21. A joint statement from the troika said the mission will return mid-month, allowing Athens to complete work on the 2012 budget, due in parliament next month, “and growth- enhancing structural reforms.”
“There wasn’t any change to the program,” Venizelos said. “We agreed at the start of the week that we would close the cycle on Thursday.”
The EU and the IMF expect Greece’s economy to shrink 3.8 percent this year before growing 0.6 percent in 2012. Venizelos said that while no final estimate is available, the contraction will be close to 5 percent of output while the government aims for the recession in 2012 to be as shallow as possible.
With debt equal to almost 1 1/2 times the size of the economy, Greece will shrink for a third year in 2011 as austerity measures depress consumer spending, complicating the goal of a budget gap of 7.6 percent of gross domestic product.
GDP fell 6.9 percent from a year earlier in the second quarter, after declining 8.1 percent on an annual basis in the first, on a non-seasonally adjusted basis.
The government is aiming at an additional 6.4 billion euros in savings to meet the 2011 deficit target, part of a 78 billion-euro package of state asset sales and budget measures approved by parliament in June. That includes measures such as a 23 percent sales-tax rate, instead of 13 percent, on restaurants and cafes that came into effect yesterday.
Venizelos said approved measures must be implemented and no new steps taken to worsen the contraction. “We will see if the deficit target changes given the depth of the recession” around Sept. 14, when the mission returns, he said.
German Chancellor Angela Merkel’s government told Greece to step up its commitment to meeting budget-cutting targets, saying “reliability” is essential to counter the market turmoil spread by the debt crisis.
“For the German government, what counts is that Greece lives up to its responsibilities -- to its own people and in terms of solidarity toward its European partners,” Steffen Seibert, Merkel’s chief spokesman, told reporters in Berlin today. “What’s important to us is that Greece implements the accords and responsibilities promptly and as quickly as possible.”
--With assistance from Paul Tugwell and Eleni Chrepa in Athens and Brian Parkin and Rainer Buergin in Berlin. Editors: Jennifer M. Freedman, Patrick Henry
To contact the reporters on this story: Maria Petrakis in Athens at firstname.lastname@example.org; Marcus Bensasson in Athens at email@example.com
To contact the editors responsible for this story: Tim Quinson at firstname.lastname@example.org; Craig Stirling at email@example.com