Greek deficit hits 10.5 percent of GDP

Athens, Greece (AHN) – Greece registered a yearly deficit equivalent to 10.5 percent of the country’s gross domestic product on Tuesday. The figure, reported by Eurostat, showed the budget gap was higher than the initial 9.6 percent estimate made in February.

Portugal was in a similar situation. According to the EU statistics agency, Lisbon logged a deficit equivalent to 9.1 percent of the country’s GDP, much higher than the previous estimate of 7.3 percent.

Because of the larger-than-expected financial hole, Greek sovereign debt yield a 10-year government bonds hit a new high of 15.5 percent as buyers stayed away from the debt papers. The European Central Bank – the only major potential buyer of Greek debt papers – balked at buying because some eurozone nations such as Germany spoke out and placed pressure instead on Athens to restructure the country’s debt.

But a restructuring, while it would reduce the interest rate and prolong the loan terms, would be an effective default since the debt would have lesser value. It was the major revision of Greece’s deficit in late 2009 which led to the European debt crisis and a $161.6 billion (EUR 110 billion) bailout for Greece. The debt contagion spread to Ireland and Portugal, which sought also bailouts.

One economist said the Greek default could no longer be avoided, but it would not likely take place this year since the EU will likely keep Greece afloat with another multibillion euro bailout by 2013 under the European Stability Mechanism.

An ECB member warned that a Greek debt restructuring would have a disastrous effect on the eurozone, particularly French, British and German banks that hold Greek debt papers.

The continuous rise in Greece’s deficit is because of the government’s failure to hike taxes and reduce spending, causing the country’s debt to go up to 142 percent of its national income.

The Greek government initially planned to reduce its deficit to 8l.1 percent of GDP in 2010 from 14.5 percent in 2009. However, the country’s Finance Ministry blamed the failure to curb the deficit to deeper-than-anticipated recession of the economy, which affected tax revenues and social security contributions.

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