Business

Greece budget deficit worse than thought

Greek anti-austerity protestor
Image caption Greece's austerity measures have sparked anger in the country

Greece's budget deficit for 2010 has been revised up to 10.5% of its annual economic output.

The figure is even worse than a previous estimate of 9.6%, and far above the 8% target agreed by Athens as part of the country's financial rescue.

The data comes as Eurostat unveils official debt statistics for the EU.

The European statistical agency also raised the UK's deficits for the past four years and questioned how military spending had been accounted for.

"Eurostat is expressing a reservation on the quality of the data reported by the United Kingdom," said the agency.

Eurostat said it was concerned about the timing of when military costs were recorded, saying these should be on a "delivery basis", but not the amount being recorded.

The cost of bailing out Northern Rock and Bradford & Bingley was more than previously reported, the European agency said.

A total of 4bn euros (£3.5bn, $5.8bn) has been added to the UK's estimated borrowings since 2007, according to Eurostat's figures.

The UK's deficit for 2010 was estimated at 10.4% of gross domestic product - the third highest level in the EU.

Vicious circle

In Greece, debt levels jumped to 142.8% of the country's gross domestic product from 127.1% previously.

The Greek government has brought in a string of draconian spending cuts and tax rises demanded by European peers and the International Monetary Fund as part of its bail-out last year.

The measures succeeded in bringing the government's deficit down from 15.4% of GDP in 2009, but still fell well short of what was hoped.

Greece's two-year cost of borrowing rose further in bond markets to more than 23% per annum following the data release.

The level indicates that markets believe the country's debts are unmanageable and Athens is very likely to impose losses on bondholders when its existing bail-out loans expire in 2013.

The Greek government blamed the excess borrowing on the country's recession, which has proved deeper than expected.

"The Greek government remains committed to achieving its deficit targets," said the finance ministry in a statement.

"All necessary measures in that direction are accounted for in the context of the medium-term fiscal strategy which will be submitted to parliament by 15 May."

Many economists point to the vicious circle Greece is caught in, whereby government austerity is worsening the recession, which in turn is increasing the government deficit.

Unprecedented

For the eurozone as a whole, government deficits fell to an average 6% from 6.3% the year before, reflecting the first year of pan-European efforts to bring government finances back under control via austerity measures.

Despite this, public debt levels as a percentage of economic output increased during 2010 to 85.1% from 79.3%, due to weak growth and the cost of interest payments.

Meanwhile, Eurostat data also painted a bleak picture at the Irish Republic, whose 2010 deficit was confirmed at an unprecedented 32.4% of GDP.

The level of new borrowing - double what was recorded the year before - was largely due losses at the nationalised Irish banks.

Like Greece, Portugal - which is set to become the third eurozone member to receive a bail-out - also overshot its 7.3% target, with a 2010 deficit of 9.1%.

Also like Greece, both Portugal and the Irish Republic saw their borrowing costs increase after deficit data was announced, each seeing yields on five-year bonds increase to about 11.5%.

However, there was good news for Spain, which many see as next in line to become stuck in the eurozone debt quagmire.

Madrid succeeded in cutting its deficit to 9.2% of GDP, beating the 9.3% target it had set itself.

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