By: Mike Campbell
Eurostat, the statistical service of the European Commission, has announced an upwards revision of the level of Greek deficit. The new figure revises the deficit upwards by 0.9% to 13.6% of GDP and worse could be in store due to uncertainties in the 2009 data. It has been suggested that the deficit may be revised again to 14.1%.
The Greek government has reiterated its commitment to reduce the deficit to 8.7% for this year and to bring it in line with the Eurozone requirement that a deficit should not exceed 3% of GDP by 2012. This is looking increasingly ambitious. Austerity measures that the Greeks have put in place have been very badly received by the Greek people and met with strike action. The cost of servicing their debt through the markets continues to rise as investors fold in higher levels of risk to Greek bonds, pushing yields up and hiking the cost of borrowing for Greece. Yields on their 10 year bond have just breached the 9% mark (three times the comparable yield for German bonds) reflecting concerns that the Greeks may need to restructure their debt. Ratings agency Moody’s has dropped its rating for Greece to A3 from A2 which may put further pressure on the yields of Greek bonds in the market. Greece needs to raise €54 billion this year to service its debt and pay maturing bond issues.
The Euro fell to $1.3387, it lowest rate for almost a year on renewed jitters about the impact of the Greek debt crisis. The IMF and EU officials are meeting with Greek counterparts currently to discuss details of the EU/IMF safety net which has been offered to Greece. The silver lining to this particular cloud is that a weaker Euro makes Eurozone exports to the rest of the world cheaper and is good news in a weak recovery.