Greece had the euro region’s largest budget deficit and public debt last year after a revision by European Union authorities who said their concerns about the country’s economic statistics were now resolved.
Greece’s budget shortfall last year was revised to 15.4 percent of gross domestic product from 13.6 percent, surpassing Ireland’s 14.4 percent shortfall, Eurostat, the EU’s Luxembourg- based statistics office, said in a report today. The debt was revised to 126.8 percent of GDP, overtaking Italy at 116 percent.
Revisions to Greece’s deficit figures, beginning after Prime Minister George Papandreou revealed last year that the gap was twice a previous forecast, spurred a surge in borrowing costs that pushed the country to the brink of default and triggered a region-wide debt crisis. Eurostat last revised the figure higher in April, sparking a downgrade of Greece’s credit standing by Moody’s Investors Service and forcing Papandreou the next day to formally seek a bailout from the European Union and International Monetary Fund to avoid default.
The yield premium investors demand to hold Greek 10-year bonds over similar-maturity bunds rose 6 basis points to 8.94 basis points. Yields on 10-year Greek bonds remain the highest in the euro region, at 11.5 percent. That compares with 8.32 percent for Ireland, 6.92 percent for Portugal, 4.58 percent for Spain and 4.18 percent for Italy.
The revisions mean that Greece won’t achieve the deficit targets it agreed to in return for the 110 billion euros ($150 billion) in EU-IMF emergency loans. Greece’s government has targeted spending cuts and revenue increases to bring the budget gap to 7 percent of GDP in 2011 from 7.8 percent this year.
The Greek Finance Ministry said today that after the revisions the budget deficit would be 9.4 percent of GDP this year and debt will reach 144 percent of GDP. The ministry today reiterated its pledged to bring the shortfall within the EU’s 3 percent ceiling in 2014.
The European Commission issued a report in January questioning the accuracy of Greece’s economic data, leading to an overhaul of the national statistics agency that gave the EU more oversight. Eurostat lifted its “reservation” today on Greek data, saying it was now satisfied that the numbers were accurate.
“Eurostat and the Hellenic Statistical Authority have addressed all of the issues identified in the last reservation during a series of” meetings, Eurostat said in the press release.
Greece’s widening deficit and questions about the accuracy of its economic data have undermined the credibility and enforcement of the EU’s budget rules, which call for euro members to keep their shortfall at less than 3 percent of GDP. To prepare the revisions, Eurostat exercised for the first time new audit powers it was granted after the EU learned Greece had used secret financial transactions to conceal debt.
Papandreou agreed in May to austerity measures worth about 14 percent of GDP over four years in exchange for the EU-IMF loan program that lasts for three years. The budget deficit shrank 30 percent in the first 10 months of 2010, as the government cut wages and pensions to counter tax evasion, an inefficient tax collection process and a shrinking economy.
The austerity measures are deepening a two-year recession in the country. The economy shrank 1.1 percent in the third quarter from the previous three months, the largest contraction in the EU and unemployment reached a record high of more than 12 percent in August.
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