Mired in recession, debt-laden Greece sees deficit widen

Mired in recession despite record spending cuts, Greece yesterday posted a higher-than-forecast deficit for 2010 as experts tipped radical restructuring of national debts worth some €330 billion.

The EU’s data agency Eurostat said last year’s public deficit for Greece, the first eurozone state bailed out, shot up to 10.5 per cent – well wide of original aims.

It tallied Greece’s total public debt at the end of last year at €328.5 billion – although nearly five months later, local estimates put it at around €340 billion.

Athens had intended squeezing its deficit down to 8.1 per cent of gross domestic product in 2010, from 15.4 per cent in 2009.

That was part of a deal last year to overhaul its economy and slash public spending in return for a €110 billion EU-IMF loan that saved the country from default.

A statement by the Greek finance ministry said the “deviation” was “mainly the result of the deeper than anticipated recession of the Greek economy that affected tax revenues and social security contributions”.

It insisted that Greece’s annual deficit reduction was the largest ever achieved by any eurozone state.

The last official estimate in Athens had been for 9.4 per cent, which led Greek conservative newspaper Eleftheros Typos to calculate that the Greek government must make additional savings of some €8 billion “to save this year’s budget from a complete derailment.”

Experts from the European Commission, European Central Bank and International Monetary Fund return to Athens early next month for a review before payment of the bailout’s fifth instalment.

A spokesman for the European Commission said Greek government plans to make budget savings of €26 billion by 2015, and raise another €50 billion by selling off state assets, meant that while the latest figures were “worrying,” they were “reliable” and “getting better.”

Athens has been locked out of commercial money markets since accepting the international bailout almost one year ago.

The government has said Greece could buy back some of its debt – now pegged by the EU at 142.8 per cent of gross domestic product, almost 18 months worth of national economic output – provided enough money was raised from the state asset sales.

With money markets believing Greece will have to restructure its long term debt, its creditors – notably the IMF – have encouraged the socialist government to try to build a national consensus around needed reforms.

A senior European Central Bank official, Finland’s Erkki Liikanen, told German daily Frankfurter Allgemeine Zeitung yesterday that Greece had to “achieve a budgetary surplus”, spelling out that “a restructuring would not change that”.

He also underlined that restructuring would not in itself help increase economic growth.

Across the 17-state eurozone, which has also seen Ireland agree a €67.5 billion international bailout and Portugal request its own aid expected to amount to some €80 billion, the average deficit in 2010 fell to six per cent, from 6.3 per cent in 2009, Eurostat said.

That is still double the notional permitted limit under an EU agreement, the Stability and Growth Pact, that is currently being rewritten to introduce financial sanctions for states that repeatedly breach shared targets.

Twenty-two of the 27 EU states were in deficit above the three per cent mark, with only Estonia recording a surplus and Sweden in balance.

The combined debt-to-GDP ratio for the eurozone increased from 79.3 per cent at the end of 2009 to 85.1 per cent at the end of 2010 – with 14 of the EU 27 coming in above the notional 60 per cent limit on this category.