Financial markets in Europe and the United States slumped badly Monday after Greece conceded it will not meet its deficit reduction goals for this year — or next — despite its austerity measures.
Stocks indexes in the U.S., France, Germany and Spain all fell about 2 percent.
The markets were responding to news that the Greek budget, which was sent to Parliament on Monday, showed a deficit this year of 8.5 percent of GDP, well above the 7.6 percent figure Greece agreed to for its bailout program. Greece also said next year's budget is estimated to miss deficit reduction targets set by its European lenders.
Some Greek officials and economists said the news supports their argument that the country cannot possibly cut its way out of debt and needs growth strategies, too. The austerity measures are considered one of the main reasons the Greek economy is set to contract a record 5.5 percent this year.
"If you have any economy which is in free fall, the private sector is de-leveraging, it is cutting its investment and its consumption, and then the state comes along and does the same, then the sum of public consumption, public expenditure and private expenditure will go down," says economist Yanis Varoufakis of the University of Athens.
Greek Bailout Money At Risk
The deficit news could further jeopardize Greece's next installment of bailout money, an 8 billion euro ($11 billion) infusion the country desperately needs in two weeks in order to avoid bankruptcy.
That's because Greece's troika of creditors — the European Union, the International Monetary Fund and the European Central Bank — have said repeatedly that the government must meet clear deficit reduction targets for Greece to receive its regular installments.
Greece this weekend agreed to cut 30,000 public sector jobs through early retirement and layoffs in a further effort to meet the conditions of lenders.
On Monday, the reaction from Germany, the eurozone's largest economic player, was muted because it's a national holiday and all offices were closed. European finance ministers were meeting in Luxembourg on Monday, and tried to send a message of reassurance that the EU was taking action.
But critics say the EU has been unable to develop a comprehensive strategy. In addition, the critics argue that the EU has been too slow and reactive, and has not been able to ease a crisis that's already seen bailouts of Greece, Ireland and Portugal.
George Osborne, the finance minister of Britain, which is not in the eurozone, stressed the need for decisive action.
"They need to increase the size and firepower of their financial fund — the bailout fund," said Osborne. "Second, they need to deal with their weak banks, which are a real drag on growth across the European continent. Third, on Greece, they need to decide what they're going to do with Greece and stick by that decision."