Talks between Greece and its international lenders on a new aid tranche were put on hold on Friday after disagreement over why Athens has fallen behind schedule in cutting its budget deficit and what it must do to catch up.

The unplanned early departure of the EU, IMF and ECB inspectors showed tension between Athens and its lenders over how to implement reforms and pull the country out of a severe debt crisis amidst a deep recession.

Greece blames a deeper-than-expected contraction -- which it sees possibly reaching 5 percent of gross domestic product this year -- for its failure to meet deficit targets, while its lenders mostly point at delays in implementing reforms.

This is not the first time that an inspection of the debt-choked country takes longer than expected and analysts and Greek officials said they believed the next, 8 billion euro tranche of aid was not at risk.

Athens has no benchmark bond maturing in September and is in no immediate danger of bankruptcy even if it did not get the aid this month.

Finance Minister Evangelos Venizelos said the talks would resume on Sept 14, after experts had had a chance to do more technical work and make preparations for the 2012 budget.

These 10 days are absolutely essential both for us and the (EU/IMF/ECB) troika in order to work on the data on a technical level and prepare the tables on which the draft budget will be based, he told a news conference.

The EU and the IMF, which launched a 110 billion euro, multi-year bailout of Greece in May last year, are likely to go to great lengths to avoid cutting Athens off from aid, for fear of the impact on financial markets and other countries in the euro zone.

CREDIBILITY AT STAKE

But they cannot be too lenient with Athens for fear of destroying the credibility of their economic program for Greece, which could also scare markets.

I expect the next tranche will be disbursed. The IMF may say that the targets have not been met, but in the end politics will prevail - it is too dangerous to let Greece go bankrupt, said Christoph Weil, Frankfurt-based economist at Commerzbank.

I expect the rift between Greece and the troika to widen in the coming months. Budget consolidation is not making progress and Greece needs more and more money, he said.

The International Monetary Fund had initially said it wanted to wrap up the inspection visit by Sept 5. The last quarterly review mission in May had also taken much longer than expected -- about a month instead of the two weeks initially planned, with also a pause in the middle.

Venizelos denied press reports the talks had been suspended.

In a statement issued on Friday, the EU, IMF and ECB said the pause in the talks would allow Athens to complete technical work needed for them to end their review.

The mission has made good progress, but has temporarily left Athens to allow the authorities to complete technical work, among other things, related to the 2012 budget and growth-enhancing structural reforms, they said in a statement.

The main conservative New Democracy opposition said the delay in the talks was a cheap communications trick by the government to postpone sharp criticism by the troika until after Prime Minister George Papandreou makes his annual economic speech on September 10.

The truth is the government has failed on all estimates and targets, it said in a statement.

The government and its international lenders said on Thursday that Greece would miss this year's budget deficit target, but they disagreed on how big the slippage would be.

An official close to the inspectors said the 2011 budget deficit will be at least 8.6 percent of GDP compared to a target of 7.6 percent. Athens estimates the deficit at 8.1-8.2 percent of GDP, said a government official, adding that the troika believes only a quarter of the budget deviation is due to the recession.

Venizelos declined to make a deficit projection and said Greece was not considering introducing extra austerity measures.

Greece has slashed public sector wages and pensions by about a fifth, increased VAT and income tax and cut public investment to reduce the deficit. But it is struggling to increase tax collection and open up the economy and its lenders say it must speed up privatizations and a number of reforms including labor laws and streamline the health sector.

Shares in Greek banks <.FTATBNK> fell as much as 7.3 percent on Friday after news of the deficit miss and the pause in talks, underperforming modest declines on European markets. Spreads on peripheral euro zone debt widened against benchmark Bunds.

Both the European Commission and the IMF have Athens-based staff who can continue talks at a technical level after mission chiefs have left.

There are no benchmark Greek government bonds maturing in September, which means the country will not be at immediate risk of default even if it does not get the 8 billion euro tranche from the rescue package this month as planned.

But the country is continuing to generate large deficits and could at some point face cash shortages.

There is a total of about 10 billion euros of maturing bonds and interest Greece needs to pay by the end of the year, mostly in December, analysts said.

(Additional reporting by Harry Papachristou, Renee Maltezou, Angeliki Koutantou and George Georgiopoulos; editing by Stephen Nisbet)

International Monetary Fund