Greece sees higher deficit after EU revises data

Associated Press
The International Monetary Fund's Poul Thomsen, foreground, and Gerry Rice, enter the Greek Finance Ministry, in central Athens, on  Monday, Nov. 15, 2010. The IMF and European delegation are in Athens to monitor progress on cost-cutting reforms. The inspection is required before the IMF and EU countries grant the third installment of rescue loans to debt-ridden Greece. (AP Photo/Petros Giannakouris)
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The International Monetary Fund's Poul Thomsen, foreground, and Gerry Rice, enter the Greek Finance Ministry, …

Debt-ridden Greece raised its projected budget deficit figure for 2010, after the European Union's statistics agency said Monday that the country's deficit and debt levels last year were much higher than previously estimated.

But the country, which has been struggling with a severe financial crisis for the past year and is receiving a euro110 billion ($150 billion) in rescue loans to keep it from defaulting on its debts, insisted it was still on track for an "unprecedented" 6 percentage point deficit reduction.

"We have been able to cut our deficits even more that the target was. From 5.5 (percent), we have cut by 6 (percent) this year," Prime Minister George Papandreou said after meeting with French President Nicolas Sarkozy in Paris.

He said the deficit and debt revisions would "probably have a positive effect" on any potential talks on extending Greece's loan repayment framework — an option Greek officials are increasingly referring to although no formal request has been made.

Eurostat said Greece's 2009 budget deficit reached 15.4 percent of gross domestic product, significantly above its previous figure of 13.6 percent.

That means Greece will not achieve the initial target of lowering the deficit to 8.1 percent of GDP in 2010. The Finance Ministry said this year's deficit was now estimated at 9.4 percent. The ministry added that it still aims to reduce the deficit to below 3 percent of GDP in 2014.

"The new starting point for the 2009 deficit reveals the magnitude of the unprecedented fiscal effort made by the Greek government in 2010," it said in a statement.

Public debt stood at 126.8 percent of GDP in 2009 — or euro298.03 billion — higher than that of any other EU state, Eurostat said. In April, it had estimated it at 115.1 percent.

The ministry said the deficit revision came after data was expanded to include debts from public corporations, the downward revision of 2009 GDP, and adjusted local government and social security fund accounts. The debt figure also was revised to account for off-market swaps.

Eurostat said all previous issues have been addressed and it no longer had any reservations.

"Greece is on track," said Amadeu Altafaj Tardio, spokesman for European Monetary Affairs Commissioner Olli Rehn. "That is the first time in five or six years that the figures are not accompanied by a footnote or an asterisk."

But some analysts saw a bleaker picture.

"The revised figures make it very difficult to achieve the 2010 targets and the upward revised debt means that the interest payment will be higher," said Nicholaos Skourias, head of investment management services at Merit Securities in Athens.

The government has said it could seek an extension for repaying Greece's rescue loans, although no formal talks have been launched.

Papandreou said that without an extension Greece would face high loan repayments within a tight framework.

"If these loans are not piled up over a few years but spread over a broader period of time, it will be much easier for Greece to handle them," he told reporters in Paris.

Papandreou did not provide an estimate on the length of such an extension, or when an official discussion could start, but said France backs the idea.

In a weekend newspaper interview, the prime minister conceded the long expected deficit revision would add pressure to cut costs, but pledged not to take any more measures such as increasing taxes this year.

"We have a budget coming soon. We are going to be reorganizing our whole public sector in a way which won't put the burden on people," Papandreou said in Paris. "It will put the burden on cutting down the waste and making things much more transparent."

The government imposed stringent austerity measures, including cutting civil servants' salaries, increasing taxes and freezing pensions, earlier this year.

The measures led to a backlash from labor unions, which have organized strikes and protests, some of which have turned violent. More than 6,000 students and left-wing protesters took part in two separate, demonstrations in central Athens Monday evening.

At the end of the one protest, youths set rubbish on fire and attacked riot police, who responded with stun grenades and tear gas. One woman was injured in the clashes, while police detained a suspected troublemaker.

The revised data came as the finance minister was meeting with officials from the International Monetary Fund, the European Commission and the European Central Bank, who were in Athens on a regular inspection visit to review Greece's implementation of the EU/IMF rescue loan agreement that saved it from default in May.

Greece has struggled to raise revenue, with figures showing it is lagging behind its targets, although it has generally performed better in spending cuts.

Last week, the Finance Ministry said it had narrowly missed its deficit reduction target for the January-October period this year. The 10-month shortfall stood at euro17.4 billion ($24 billion), down 30 percent from a year earlier instead of the targeted 32 percent.

Without the loans, Greece would have already defaulted. It is effectively locked out of the international bond market by the massively high interest rates it would have to pay if it were to issue bonds — a reflection of low trust in the country's prospects.

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Steinhauser reported from Brussels. Associated Press writer Jamey Keaten and Sylvie Corbet in Paris and APTN producer Nathalie Rendevski Savaricas in Athens contributed.

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