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Greek 2009 deficit revised higher

Greece and Ireland had much larger budget deficits last year than expected and the Greek data may be revised further due to its unreliability, the European Union's statistics office said, sending the euro lower.

“It looks like a terrible situation just got worse,” said Nick Kounis, economist at Fortis.

Greece, now negotiating a three-year emergency loan package with the European Commission, European Central Bank and International Monetary Fund, had a gap of 13.6% of gross domestic product, rather than 12.7% as reported earlier, Eurostat said.

But the deficit may turn out to be even higher.

“Eurostat is expressing a reservation on the quality of the data reported by Greece, due to uncertainties on the surplus of social security funds for 2009, on the classification of some public entities and on the recording of off-market swaps,” Eurostat said in a note attached to the data.

“Following completion of the investigations that Eurostat is undertaking ... in cooperation with the Greek statistical authorities, this could lead to a revision for the year 2009 of the order of 0.3 to 0.5 percentage points of GDP for the deficit and 5 to 7 percentage points of GDP for the debt,” it said.

Greek government bond prices and the euro fell after the data with the Greek/German 10-year government bond yield spread up at 542 basis points from around 516 bps at Wednesday's settlement, surpassing the previous peak of 532 bps as the 10-year Greek yield hit a new high of 8.5%.

“What concerns me is the general uncertainty about the Greek official figures. This affects market perception about Greece ... that one can't rely on the Greek statistics and that the deficit is revised up and up and up,” said Giada Giani, economist at Citigroup.

The euro fell to around $1.3372 from around $1.3410 before the data.

Greek debt rose to 115.1% of GDP in 2009 from 99.2% in 2008, the Eurostat data showed.

The Eurostat note did not specify whether the revision would be upwards or downwards, but an EU official with knowledge of the data said: "It is likely to be upwards."

The Greek Finance Ministry said in a statement that the upward revision of the deficit was due to the downward revision of the estimate for GDP in 2009 as well as a reassessment of financial accounts of pension funds.

The ministry said it still aimed to reduce the budget deficit this year by “at least 4 percentage points” of GDP, but economists said the changed starting point cast doubt on whether Athens would cut it to 8.7% of GDP as earlier planned.

“It does raise the issue that the starting point for this year's measures is now 1% higher,” said Chris Pryce, senior analyst for Greece at Fitch Ratings.

“There is uncertainty over whether the EU and the IMF would want additional restrictions, possibly in the form of back-up measures should it become apparent later this year that Greece will not meet its target,” he said.

The Greek government has said it wants to bring the deficit down to 5.6% of GDP in 2011, 2.8% of GDP in 2012 and 2% by 2013 from 8.7% of GDP in 2010.

Another EU official, who asked not to be identified, said the deficit reduction path in 2011 and 2012 for Greece may have to be steeper than originally planned as a result and that EU finance ministers would discuss this in June.

A mission of the IMF, the European Commission and the ECB, currently in Athens, is discussing the fiscal effort the country has to undertake in 2011 and 2012 to secure emergency loans if it cannot finance itself on the market.

Ireland had its budget deficit revised even more -- to 14.3% from the initially reported 11.7%. Irish Finance Minister Brian Lenihan said this was a result of a technical reclassification associated with government support provided to the banking sector.

“It is important to note that the underlying 2009 general government deficit for Ireland is 11.8% of GDP, which is broadly similar to that projected in December's budget,” he said.

“There is no additional borrowing associated with this technical reclassification. This is a once-off impact, and will not affect the government's stated budgetary aim of reducing the deficit to below 3% of GDP by 2014,” Lenihan said.

The overall budget deficit in the 16 countries using the euro rose to 6.3% in 2009 from 2% in 2008 and debt surged to 78.7% of GDP from 69.4%.

In the whole 27-nation European Union, the aggregated budget deficit was 6.8% against 2.3% in 2008 and debt rose to 73.6% from 61.6%. (Reuters)