Eurozone finance ministers have delayed Greece’s next aid payment until mid-November as they consider whether to make Europe’s banks write down more of the nation’s debt.
The next €8bn (£6.9bn) tranche of Greece’s bailout was due to be paid this month, leaving Greece at a heightened risk of defaulting on its huge debt pile.
But Greek finance minister Evangelos Venizelos said the country had enough cash to cope until then and insisted that eurozone ministers were not preparing for a default, despite the ominous delay.
"There is no discussion of default," Venizelos told a news conference on returning to Athens.
Markets took the opposite view, though, sending the FTSE 100 down almost 200 points, or 3.4 per cent, to 4,903.
The 17 eurozone finance ministers, meeting in Luxembourg, called for a review of a July 21 debt swap agreement with private holders of Greek bonds.
Jean-Claude Juncker, chairman of the 17-nation Eurogroup, said ministers were reassessing the extent of private sector involvement in a planned €109bn second Greek rescue package, which may now prove insufficient after Athens admitted it would miss key deficit targets.
Analysts said the delay in disbursing the aid, and the reopening of the private sector deal, raised the chances of a default as soon as the currency area has its new financial firefighting tools in place.
Greece had previously said it needed the money to pay October salaries.
"If they are having problems getting the sixth tranche of funding, what's going to happen to the seventh tranche of funding in three months' time? The situation is going to be even worse then. So Greece is on the brink," said Nick Stamenkovic, bond strategist at RIA Capital Markets.