Greece’s 2010 Deficit Shrinks 36.5%, Beating Target
Greece’s central government budget deficit, which sparked a European debt crisis, contracted by more than a third last year as spending cuts more than offset slower-than-forecast revenue growth.
The gap, which doesn’t include outlays by state-owned institutions and companies, shrank 36.5 percent to 19.6 billion euros ($25.3 billion), according to preliminary data released by the Finance Ministry. The decline was more than the 33.5 percent forecast in the government plan that helped Greece secure a 110 billion-euro bailout from its European partners and the International Monetary Fund. Final data are due on Jan. 20.
The Greek bailout prompted investors to shun bonds of the region’s high-deficit nations, sending borrowing costs in Ireland, Spain and Portugal to euro-era highs and forcing Ireland seek emergency aid in December. Prime Minister George Papandreou cut wages and raised taxes, triggering strikes and protests across the country, to make good on his pledge to trim the shortfall to 9.4 percent of gross domestic product last year.
“These figures give confidence that the 9.4 percent target is achievable,” said Ilias Lekkos, chief economist at Piraeus Bank in a telephone interview.
Risk Premium
The results also give the government a 1.5 billion-euro cushion to cover overspending by state-controlled enterprises, Lekkos said.
The yield premium that investors demand to buy Greek 10- year bonds over German bunds fell 27 basis points today to 946 basis points, after reaching a euro-era high of 978 basis points on Jan. 7. The yield on the country’s benchmark 10-year bond fell 29 basis points to 12.43 percent, more than four times the rate on comparable German debt.
Ordinary budget spending fell 9 percent last year to 65.3 billion euros from 71.8 billion euros in 2009, exceeding the government’s planned reduction of 7.5 percent.
State budget revenue increased about 7 percent, boosted by a tax-arrears settlement plan that increased income by around 1 billion euros in 2010. Ordinary revenue grew 5.5 percent, compared with a targeted increase of 6 percent. The government initially forecast a 13.7 percent increase for ordinary revenue and was forced to reduce the goal twice as increases in value value-added taxes and levies on alcohol, tobacco and fuel failed to generate enough income.
Recession Deepens
The austerity measures have deepened the country’s two-year recession and contributed to GDP contracting an estimated 4.2 percent last year. The government forecasts economic output to contract 3 percent this year.
Industrial production fell 7.6 percent in November from the same month a year earlier, more than the 5.2 percent decrease in November, the Athens-based Hellenic Statistical Authority said today. The biggest contraction came in electricity generation, which dropped 13.3 percent.
“The drop in domestic demand is worsening the climate for Greek production and the only supporting factor comes from external demand,” said National Bank of Greece SA economist Nicholas Magginas by telephone before today’s release.
To contact the reporter on this story: Marcus Bensasson in Athens at mbensasson@bloomberg.net
To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net.
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