Greece's economy shrank more than feared last quarter and the government on Friday sharply revised down its figures for the previous three quarters as well, increasing doubts over its ability to resolve its debt crisis.
A European Union government source said meetings of the region's finance ministers next week were unlikely to put together an aid package for Greece, suggesting governments remained unable to decide on how to prevent the crisis from hurting financial markets' faith in the euro zone.
"They (EU leaders) try to keep the pressure on Greece as high as possible, as well as on Portugal and Spain, to do whatever they can now," the source said.
The euro <EUR=> sank to a fresh eight-month low of $1.3529 against the dollar in response, while spreads for the government bonds of Greece and other heavily indebted states in the south of the zone widened.
Greece's gross domestic product contracted 0.8 percent in the fourth quarter, much deeper than the 0.5 percent forecast in a Reuters survey, the government announced. [ID:nLDE61B0ZW]
Just as damaging to confidence was the statistics agency's big revisions to shrinkages in past quarters: the first-quarter 2009 fall was changed to 1.0 percent from 0.5 percent, the second quarter to 1.9 percent from 1.2, and the third quarter to 2.5 percent from 1.7 on an annual basis.
It is common for governments to revise GDP figures but large inaccuracies in Greek economic data — some of them apparently deliberate and politically motivated — have fuelled its debt crisis by angering investors and Greece's EU partners.
Last October, the incoming socialist government revealed Greece's 2009 budget deficit would be twice as big as a previous estimates — and four times the EU ceiling. [ID:nLDE6131TT]
DEBT PLAN
Economists said the latest data suggested Greece's economy shrank around 2 percent over last year; that implies lower-than-expected tax revenues, hurting the government's efforts to slash the deficit.
A deep recession could also make Greek public and private sector unions, which have embarked on a series of one-day strikes to protest against austerity measures, even less willing to accept wage and spending cuts mandated by the government.
"The Greek government's (growth) forecast is far too optimistic," said Ben May of Capital Economics. "This is going to be another factor making the fiscal adjustment Greece is trying to achieve very difficult."
In an effort to prevent speculation about an eventual debt default by Greece, EU leaders pledged at a summit on Thursday to take action "if needed" to protect financial stability in the euro zone — an unprecedented undertaking to bail out a euro zone member if that proves necessary. [ID:nLDE61A0W2]
But markets were disappointed by the vagueness of the pledge, which contained no details of the form the aid might take or when it might be disbursed.
The premium investors demand to hold 10-year Greek government bonds rather than euro zone benchmark German Bunds rose on Friday to 302 basis points, compared with 275 bps in late European hours the previous trading day.
EU AID?
In addition to a lack of agreement on how to handle Greece among EU member states, one reason for the vagueness appeared to be disagreements between politicians and ruling parties within countries such as Germany.
Berlin worries that helping Greece financially would set a precedent, making it liable for future bailouts of weak states in the south of the euro zone.
The EU government source said EU nations had agreed they would step in with loans only as a last resort.
"I wouldn't expect anything (concrete on financial aid) at the Ecofin next week," said the source, referring to regular meetings of finance ministers from the euro zone and the full EU on Monday and Tuesday.
The source added that an adverse reaction in the financial markets could trigger a decision on aid at any time, but EU states were reluctant to come up with an aid programme quickly because leaders felt they had been "fooled" by Greece for years with inaccurate statistics and broken promises.
"The Greeks have fooled us around for 10 years. That's why nobody is going to rush in a big aid package quickly," he said.
Another EU source said the ministers may discuss a financial support package for Greece on Monday, but would not reveal details because there was a need to keep the market guessing.
"We must keep the market uncertain (of our actions). Even if we have details, we will never go so far as to announce them," the source said.
