LONDON (MarketWatch) — The Greek government said it won’t meet its deficit target this year and agreed to additional austerity measures demanded by international lenders ahead of a meeting of euro-zone finance ministers later on Monday.

The Greek cabinet on Sunday approved the draft 2012 budget, which was presented to parliament on Monday. The budget is expected to be approved by parliament by the end of October, the finance ministry said in a statement Monday.

Bowing to pressure from the so-called troika of international creditors, Greece has agreed to implement 6.6 billion euros ($8.8 billion) in new austerity measures, The Wall Street Journal reported.

Greece on U.S. investors’ minds

Officials from the troika — the European Union, European Central Bank and the International Monetary Fund — have been in Greece for several days to decide on the disbursement of the next tranche of aid to Greece. The money is sorely needed to help Greece avoid a default on its obligations in coming weeks.

Greece’s 2011 deficit is now expected to be 8.5% of gross domestic product, falling short of a target of 7.6%. The deficit will be reduced to 6.8% of GDP in 2012, but still short of the 6.5% target.

The Greek finance ministry said the targets will be missed because the nation is suffering a much deeper-than-projected recession. The economy is now expected to contract 5.5% in 2011 compared to the 3.8% contraction projected in June.

Finance ministers to meet

The news from Greece comes ahead of a meeting of euro-zone finance ministers on Monday afternoon in Luxembourg.

“The budget shortfalls could strengthen the push for further private-sector participation under the second bailout package [for Greece],” said Gary Jenkins, head of fixed income at Evolution Securities.

“It also increases the possibility of a delay to the next tranche of bailout funds, though until the euro area is better prepared for a Greek default, we expect the funds will be paid to avoid the consequences of a disorderly default,” Jenkins said in a note to clients.

Investors spooked by the news from Greece rushed to sell shares Monday in Asia and Europe. The pan-European Stoxx 600 index (SXXP) closed down 1.1%.

In the currency markets, the euro fell to $1.3275 from $1.3409 in North American trade late Friday.

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