Greece's 2010 budget deficit was bigger than estimated at over 10 percent of GDP, heralding yet more austerity measures, a source close to the country's international lenders told Reuters on Thursday.
The revision will heap another fiscal burden on a government already struggling to avoid a debt restructuring after missing some targets of an EU/IMF bailout, just as Portugal's decision to seek EU aid sharpens investors' focus on the euro zone crisis. [ID:nLDE7360LT] [ID:nLDE73606W]
The government's most recent estimate of last year's deficit was 9.4 percent of economic output, while its lenders — the 'troika' of European Commission, IMF and ECB — saw it at 9.6 percent. The initial target was about 8 percent of GDP.
"The revision will make it more difficult for Greece to achieve its 2011 budget targets. They will have to save more," said Christoph Weil, Frankfurt-based economist at Commerzbank.
"The EU/IMF safety net for Greece will probably have to be beefed up," he said. "In the long term, this can't be done without restructuring, in 2013 or later."
In Berlin, the leading economic research institutes in euro zone paymaster Germany on Thursday agreed a restructuring would be needed. [ID:nBAT006149] Greece, however, has always said restructuring was not an option.
Greece's statistics office ELSTAT sent data to its EU counterpart Eurostat last week, and discussions are ongoing about the exact number for last year's gap, officials said. Eurostat is due to publish its estimate on April 26.
"It is clearly above 10 percent," the official close to the troika said of last year's deficit, after Athens discussed the figure with its lenders during an inspection visit this week. "This will require action because of spillover effects."
RESTRUCTURING FEAR
Although some EU senior government officials now privately say Greece may eventually have to restructure its debt, sharing the views of many economists, the EU and the IMF have repeatedly ruled it out.
An opinion poll showed on Thursday about 55 percent of Greeks asked expected a restructuring. [nLDE7360E1]
Athens is working on measures to compensate for a revenue shortfall in the first two months of the year and to make savings of 8 percent of GDP in 2012-2014.
EU and IMF inspectors visiting Greece this week concluded it had made good progress in identifying measures but needed to flesh them out and provide aggregate estimates of their impact ahead of the adoption of the plan by the cabinet mid-April and parliament mid-May, the official said.
The revision will require even more efforts, analysts said, adding that this could prove difficult for the government facing not only social resistance but criticism from within as it struggles to regain market confidence and return to bond markets as early as this year.
"Further austerity measures will be politically difficult for the government … it is likely to increase volume of protests within the (ruling) PASOK party," said Diego Iscaro, at IHS Global Insight.
With its 230 billion euro economy in its third straight year of recession, generating revenue growth to further cut the deficit is proving difficult. The economy is expected to contract 3 percent this year after a 4.5 percent slump in 2010.
"When you are in a big recession, the danger is making the problem worse and the recession last longer … but I don't think they will have any other option," Iscaro said.
Asked about reports that the final 2010 deficit figure could range between 10.4 and 10.7 percent of GDP, the source close to the troika said: "This is exactly where we stand now with ELSTAT, but the (Finance) Ministry believes it can be brought lower."
Finance Minister George Papaconstantinou said last week that the deficit would be higher than originally estimated but he gave no figure. The ministry declined comment on Thursday.
At the end of 2009, a much bigger revision of the deficit triggered the crisis that brought Greece close to bankruptcy and shook the euro zone, spilling over to Ireland and Portugal.
In October 2009, the new Socialist government estimated the 2009 deficit at 12.7 percent of GDP, more than double the previous administration's estimate. It has since been revised to 15.4 percent of GDP.
