Greek 2009 deficit turns out higher, euro falls

Greece is still on track to meet a 4 percentage point deficit reduction target this year but the upward revision of the starting point means it will have to intensify deficit cutting efforts in 2011 and 2012, said the European Commission.

"It looks like a terrible situation just got worse," said Nick Kounis, economist at Fortis.

Greece, negotiating a bailout package with the European Commission, European Central Bank and International Monetary Fund, had a deficit of 13.6 percent of gross domestic product rather than the 12.7 percent reported earlier, Eurostat said, adding the fiscal gap may turn out to be even higher.

The office also raise its estimates for Ireland's 2009 deficit.

"Eurostat is expressing a reservation on the quality of the data reported by Greece, due to uncertainties on the surplus of social security funds for 2009, on the classification of some public entities and on the recording of off-market swaps," it said on Thursday in a note attached to the data.

Investigations "could lead to a (further) revision ... of the order of 0.3 to 0.5 percentage points of GDP for the deficit and 5 to 7 percentage points of GDP for the debt."

Eurostat did not specify the type of revision, but an EU official with knowledge of the data said: "It is likely to be upwards."

Record 10-year Yield

Greek government bond prices and the euro fell after the data, with the Greek/German 10-year government bond yield spread rising to 571 basis points from around 516 bps at Wednesday's settlement, surpassing a previous peak of 532 bps as the 10-year Greek yield hit a new high of 8.5 percent.

"What concerns me is the general uncertainty about the Greek official figures. This affects market perception about Greece ... that one can't rely on the Greek statistics and that the deficit is revised up and up and up," said Giada Giani, economist at Citigroup.

The euro fell to $1.3336 from $1.3410 before the data.

The Greek Finance Ministry said in a statement that the upward revision of the deficit was due to the downward revision of the estimate for GDP in 2009 as well as a reassessment of financial accounts of pension funds.

Doubts Over Greek Targets

The ministry said it still aimed to reduce the budget deficit this year by "at least 4 percentage points" of GDP, but economists said the changed starting point cast doubt on whether Athens would cut it to 8.7 percent of GDP as earlier planned.

"There is uncertainty over whether the EU and the IMF would want additional restrictions, possibly in the form of back-up measures, should it become apparent later this year that Greece will not meet its target," said Chris Pryce, senior analyst for Greece at Fitch Ratings.

The Greek government has said it wants to bring the deficit down to 5.6 percent of GDP in 2011, 2.8 percent in 2012 and 2 percent by 2013.

The European Commission said the target for Greece this year was a four percentage-point deficit reduction. It was set that way because the starting point was uncertain.

The data also meant that Greece will have to boost deficit reduction efforts in 2011 and 2012.

"Greece is on track for 2010... (But) there is an urgency to intensify all efforts... and additional fiscal consolidation measures for the years beyond 2010," Commission spokesman Amadeu Altafaj told a regular news briefing. "

An EU official said EU finance ministers would discuss this in June.

An IMF/EU/ECB mission currently in Athens is discussing fiscal steps the country would have to take in 2011 and 2012 to secure emergency loans if it can't finance itself on the market.

Irish 'One-Off'

Eurostat raised Ireland's 2009 budget deficit even more, to 14.3 percent of GDP from 11.7 percent. Finance Minister Brian Lenihan said this was due to a reclassification of government support to the banking sector and did not impact Ireland's goal of cutting the deficit to below 3 percent by 2014..

"The underlying 2009 government deficit for Ireland is 11.8 percent of GDP, which is broadly similar to that projected in December's budget," he said.

"There is no additional borrowing associated with this technical reclassification. This is a once-off impact."

The overall budget deficit in the 16 countries using the euro rose to 6.3 percent in 2009 from 2 percent in 2008 and debt surged to 78.7 percent of GDP from 69.4 percent, Eurostat said.

In the 27-nation European Union, the aggregated budget deficit was 6.8 percent against 2.3 percent in 2008.

[Source: Reuters, Brussels, 22Apr10]

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