GREECE AND Portugal are deeper in debt than previously estimated, according to official figures that show attempts to contain their financial woes have so far failed.
The statistics agency Eurostat said Greece’s budget deficit hit 10.5 per cent of economic output in 2010, well above the 9.6 per cent the European commission expected last autumn.
Portugal, which is negotiating a bailout similar to those for Greece and Ireland, saw its debts reach 9.1 per cent, far ahead of the 7.3 per cent the commission used as a benchmark until recently.
Deficits in both countries remain below the EU-topping 32.4 per cent recorded in Ireland, although that figure was mainly because the EU figures include the cost of injecting more money into Anglo Irish Bank and Irish Nationwide.
The rise in the annual debt levels are a blow to efforts in Brussels to ease growing fears among investors that Greece will be overwhelmed by its financial situation and default on its debt.
The country had to be saved from bankruptcy with €110 billion in rescue loans last May, but continues to struggle to raise revenue as its economy shrinks.
Most economists consider a Greek default a forgone conclusion, with either some debt forgiveness or a radically longer timetable of repayments. They argue only about the timing.
Prominent figures such as the International Monetary Fund head Dominique Strauss-Kahn have insisted the Greeks will honour their commitments to repay.
However, an adviser to German chancellor Angela Merkel said that Greece’s escalating debts could bring forward the need for a bailout.
“I don’t think that Greece will succeed in this consolidation strategy without any restructuring in the future, or perhaps also in the near future,” Lars Feld, a member of the German prime minister’s council of economic advisers, told Bloomberg. “Greece should restructure sooner rather than later.”
Investor concerns pushed Greek bond yields to record highs with two-year bonds adding 64 basis points, or 0.64 percentage points, to 23.6 per cent, while yields on 10-year bonds reached 15.26 per cent. Portugal’s two-year bond yields touched 11.6 per cent, before easing to 11.5 per cent.
EU officials said there were reasons to be upbeat after a decline in the average debt across the 17-member euro zone. – (Guardian service)
