Greece has enough money to pay pensions, salaries and bondholders through mid-November, the finance minister said Tuesday, as global markets sank on worries that a messy default could bring down European banks and trigger another global recession.
The Athens Stock Exchange general index tumbled to close down 6.3 percent, while the main Europe markets fell almost 3 percent. The turmoil endangered French-Belgian bank Dexia, whose shares plunged as much as 40 percent, on worries about its exposure to Greek bonds.
The Dow Jones fell 250 points, but recovered somewhat when Federal Reserve Chairman Ben Bernanke said the central bank is prepared to take more steps to stimulate the U.S. economy.
Greece had previously said it would start running out of money in mid-October if it didn't get the next euro8 billion ($11 billion) installment of the euro110 billion rescue package it has been relying on since May 2010.
Finance Minister Evangelos Venizelos sought to reassure Greeks and investors that the country can hold on a little longer. The government can tap contingency reserves to buy the extra time, a ministry official explained.
"Until mid-November it is clear there will be no problem," said Venizelos, upon returning from a eurozone finance ministers' meeting in Luxembourg.
The worry is that a messy default by Greece _ in which sharp losses are imposed with little warning on bondholders, including many European banks _ would cause massive losses in the financial sector and trigger a credit crunch. That could stifle loans to the real economy, cause huge uncertainty and push the world economy into another recession.
European officials insist that will not happen, with Jean-Claude Juncker, who heads the eurozone finance ministers, saying late Monday that "everything will be done to avoid that and it will be avoided."
German Chancellor Angela Merkel discussed the situation in a telephone conversation with Greek Prime Minister George Papandreou Tuesday afternoon, the premier's office said in a statement.
Eurozone ministers have indicated that while Greece would get its next batch of loans, that decision would not be made until later this month, after the international debt inspectors in Athens complete their review of Greece's reforms.
The inspectors from the IMF, European Central Bank and European Commission, collectively known as the troika, had suspended their review in September amid concern over missed targets. They returned to Athens last week.
The delay had raised the possibility that Greece would run out of money to pay salaries and pensions and possibly bondholders.
To convince the troika that it should get the next bailouts loans, the Greek government announced a series of new measures, including extra taxes on property, and began pushing through plans to suspend tens of thousands of civil servants on reduced pay.
"We're at the worst moment under the worst conditions. We're dependent on the help and lending of our institutional partners," Venizelos said.
"We have to make a super-human effort to win this wager of our times. There was this false sense of a standard of living that we, ourselves created," the minister stressed. "What's important now is to protect the country and to make clear and final decisions."
But the measures have outraged Greeks who over a year and a half have seen their incomes slashed and their living costs climb. Locked in a recession that is forecast to see the economy contract by 5.5 percent this year, even members of the government have voiced concern.
Unions have responded with repeated demonstrations and strikes. Civil servants will walk off the job for a 24-hour strike Wednesday. Air traffic controllers will join in, grounding all flights to and from Greece, as will lawyers, public hospital doctors and dock workers.
Protesters have also staged occupations of ministry buildings for hours on several occasions, sometimes forcing ministers to reschedule meetings with the troika.
Most economists agree Greece is unlikely to be able to get out of its debt hole through austerity measures alone and many have called for private bondholders _ including many European banks _ to take sharper losses than currently planned in the second bailout deal.
The view was reinforced this week by figures in the Greek 2012 budget which showed it had missed its deficit reduction targets for this year. The budget gap is expected to reach 8.5 percent of GDP, higher than the original target of 7.8 percent. This could reach 9 percent if strikes and civil protests delay the implementation of reforms, Venizelos said.
The argument in favor of letting Greece write off more of its debt was underscored by figures predicting that the Greek government would next year post a budget surplus if it were not for the huge amount of interest it is paying on its existing debt.
Some say allowing Greece to cut loose some of that debt, for example by imposing 50 percent losses on private bondholders rather than the 21 percent currently negotiated so far, would be a crucial step to healing the country's crisis.
German Finance Minister Wolfgang Schaeuble gave his clearest indication yet, that the eurozone is considering imposing losses on banks that go beyond the 21 percent writedowns on Greek bonds tentatively agreed in July.
"We discussed this intensively and certainly made some significant progress," Schaeuble told journalists after the eurozone meeting. He added that before any decisions are taken, the troika has to finish its report.
"But we have to find a solution that is sustainable in the long-run for Greece, because that's one of the problems," Schaeuble added.
He also said that a working group of experts had been asked to draw up a list of pros and cons on giving the bailout fund more firepower through leverage.
Eurozone leaders are now assessing how best to protect European banks and other struggling economies. The European rescue fund is likely to be increased in size after being given new powers to shore up banks and governments in need.
Gabriele Steinhauser contributed from Luxembourg.