Euro-zone finance ministers reached a deal to provide collateral to Finland in exchange for future aid to Greece, clearing one hurdle to a larger bailout, but suggested that they could revisit a complex rescue plan reached in July given the deterioration of the country's fiscal position.
In a lengthy meeting here that included wide-ranging discussions on Greece and on possibly leveraging the bloc's bailout fund to make it larger, finance ministers delayed their most immediate task: approving an €8 billion ($10.7 billion) payment to Greece under its initial bailout plan.
Instead, Jean-Claude Juncker, the Luxembourg premier who presides over gatherings of finance ministers, said he expected the decision would be made "in the course of October"—but likely not on Oct. 13, as had previously been suggested.
The shifting dates reflect the high-stakes game of chicken being played by Greece and its fellow members of the euro zone. The other countries, who are financing the bailout with the International Monetary Fund, are likely to give Greece the money, for the simple reason that not doing so could unleash broader chaos. But they are intent on pressuring Greece as much as possible to make steep budget cuts before the check is written.
Last month, Greece's deputy finance minister said the country could run out of money by mid-October; on Monday, Mr. Juncker and other officials said Greece has enough until mid-November—and leaned on the Greeks to keep cutting.
The Greek fiscal problem took on new urgency after Greece admitted Sunday that it would miss its budget deficit targets for this year. That roiled markets on Monday. Bourses in Europe closed lower, and the euro, which has been on a steady downward slide against the dollar for more than a month, slumped below $1.32.
There were more tensions: Moody's Investors Service warned about Franco-Belgian bank Dexia SA's exposure to Greek government debt. Dexia's shares fell more than 10%. That warning crystallized the fears of investors and policy makers that interconnections between weak European banks and weak European sovereigns could destabilize the financial system.
One decision that was made at the meeting was to provide collateral, if demanded, to countries lending to Greece. That was a sop to Finland, which had made loud demands. But the Finnish won't get much: Under what the bailout fund's chief executive, Klaus Regling, called a "complicated financial structure," the collateral would be investments funded by Greek government bonds routed through Greek banks—and only released after as much as 30 years.
Mr. Regling said he believed no one but Finland would be interested.
Though broadly expected, and well-telegraphed by Greek authorities, the disclosure of the wider deficit increased investors' concerns that Greece could tumble into a large and messy default, instead of the small and orderly debt rescheduling now being negotiated with the country's creditors.
Mr. Juncker on Monday raised the possibility that that creditor arrangement could be re-examined. He said that the situation had changed since late July, when a preliminary deal was reached, and that "technical revisions" were possible. He declined to elaborate on what that might entail.
The July creditor agreement is central to the euro zone's plan for Greece. But Greece's bigger deficit means it will likely need a bigger bailout. Few of Greece's rescuers have much appetite for that.
That poses the question: Should they continue with the plan, which includes a second, €109 billion bailout, or throw it out and replace it with something that cuts Greek debt more aggressively by forcing greater losses on private creditors?
Market prices imply a high probability of a default that causes substantial losses. Many analysts say creditors face a 50% "haircut" or more. The July plan calls for creditors to face average losses of only around 10% and to continue lending to Greece.
Greece's finance minister, Evangelos Venizelos, told reporters here Monday that Greece would get itself back on track. (He said Sunday that this year's budget deficit would be equivalent to 8.5% of gross domestic product, or around €18.7 billion. The target is €17.1 billion.) "Greece is a country with structural difficulties," Mr. Venizelos said. "But Greece is not the scapegoat of the euro area. Greece is a proud country."
The fiscal problems vaulted Greece back into the spotlight, but other fears linger not far offstage. Most disquieting: What to do about Italy, whose huge debt burden has made it vulnerable to a sudden flight by investors. Already, the European Central Bank has stepped in to purchase Italian bonds and hold back any panic.
But the ECB has made clear it wants the euro zone's own bailout fund to take over that responsibility. Even with an expansion that should be completed in a matter of weeks, the fund, at €440 billion, would be too small to handle Italy.
That has led to a raft of proposals to use leverage to boost the fund's size, without requiring governments to guarantee more cash. Mr. Juncker and Olli Rehn, the European Union's economy commissioner, said such ideas were being considered, but they said no decisions were made.
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