Greece's 2010 Government Deficit Significantly Larger Than Predicted

04/26/2011 08:08 am ET | Updated Jun 26, 2011

BRUSSELS -- Greece's government deficit was significantly bigger than forecast last year, European Union data showed Tuesday, underlining the difficulties the debt-ridden country is having to get its finances under control.

Greece's deficit hit 10.5 percent of economic output in 2010, well above the 9.6 percent the European Commission, the EU's executive, predicted last fall.

The country's debt swelled to 142.8 percent of gross domestic product, according to data released by EU statistics agency Eurostat – the highest in the eurozone and above the 140.2 percent the Commission had forecast.

Greece had to be saved from bankruptcy with euro110 billion ($160 billion) in rescue loans last May, but continues to struggle to raise revenue as its economy shrinks. Most economists expect the country will eventually have to restructure its debt – either by asking creditors to give it more time to repay or even cutting the total amount owed. However, EU officials have so far ruled out a restructuring.

The Greek finance ministry attributed the larger deficit to a deeper than expected recession, which cut into tax revenues and social security contributions.

"In any case, the Greek government remains committed to achieving its deficit targets under the Economic Adjustment Programme and will take all necessary measures in that direction," the ministry said in a statement.

In its bailout program – which spells out Greece's path to financial health – Athens promised to get its deficit below the 3 percent maximum allowed by EU rules in 2014.

The 17 countries that use the euro had an average deficit of 6 percent last year, double the 3 percent allowed under EU rules.

The highest deficit was produced by Ireland – the second country that needed to be bailed out by other EU nations and the International Monetary Fund – reaching a record 32.4 percent of GDP because of expensive bank bailouts, only slightly above the 32.3 percent forecast.

Portugal, which is currently negotiating its own package of rescue loans, had a deficit of 9.1 percent, way above the 7.3 percent the Commission had expected last fall, but Lisbon had warned markets of the upward revision on Saturday.

There were some good news for Spain, the country that most analyst view as the next weakest link in the eurozone. It's deficit was 9.2 percent of GDP, slightly below the 9.3 percent forecast by the Commission.

Euro newcomer Estonia was the only eurozone country to produce a surplus – 0.1 percent of GDP – last year, but the tiny Baltic nation adopted the common currency this January.

Bond markets quickly reacted to the news.

The yield – or interest rate – on Greek 10-year bonds hit 15.18 percent, up from 15.06 percent at the open, while Portugal's rose to 9.54 percent from 9.47 percent. Spain's 10-year yield meanwhile inched down to 5.47 percent, from 5.48 percent, but remained way above the 4 percent they traded at just last October.

The United Kingdom, which is not in the eurozone, recorded a deficit of 10.4 percent of GDP – the third highest in the EU behind Ireland and Greece. However, Eurostat said it had some reservations on the quality of data reported by the U.K. because of the way the country records its military expenditure.

Eurostat spokesman Tim Allen said it was too early to tell for which years and by how much U.K. deficit figures would have to be revised to comply with the agency's rules, but because the issue was only related to the timing of the expenditure rather than the overall amount, any revisions should not affect the U.K.'s debt levels.

Overall, the eurozone managed to cut the massive deficits it built up during the financial crisis faster than predicted. The average deficit stood at 6.3 percent in 2009 and the Commission had expected that figure to remain stable in 2010.

Apart from the three most troubled countries, Greece, Ireland and Portugal, only Austria failed to undercut the Commission's autumn forecast. The small Alpine nation's deficit rose to 4.6 percent in 2010, above the 4.3 percent forecast, due to changes in the way countries have to record debts they take on from public companies.


Elena Becatoros in Athens contributed to this story.