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Eurostat expects 10% higher external debt after the 2009 deficit restatement

18 October 2010 / 12:10:17  GRReporter
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10% increase in the external debt of Greece is expected after the end of this week when the European statistical office Eurostat will officially announce the grand total of the Greek budget deficit. According to initial information, the deficit will reach between 15.2% and 15.5% of GDP in 2009. Early in 2010 its value was determined to 12.6% of GDP and later the European statistical office restated it to be 13.8% of GDP. The external debt for 2009 will even be reestimated from 115% of GDP to 125% of GDP.

The new increase in the budget deficit will upset the plans of the socialist PASOK government, which should vote the new version of the draft 2011 budget on November 18. Experts estimate that the restatement of the deficit will automatically burden the 2010 results and the economic plan for 2011 will have to be adjusted as to offset the added difference. In other words, implementation of new measures to reduce costs and gaps in the budget are inevitable and further cuts, even more stringent than those applied in the past year, are awaiting the Greeks.

The European statistical office bringing to light various tricks the Greek governments have used to decrease the book value (not the real one) of the macroeconomic figures of the country necessitated calculation and recalculation of the ill-fated Greek budget deficit. The three main reasons for restating the deficit in the period 2006-2009 are the hidden spending of thousands of state enterprises operating at a loss for years, unreasonably high costs of regional administration and local authorities, and swap-transactions with Goldman Sach in 2001.

The Greek edition Naftemboriki reads that governments have used at least in the last 12 years various financial tricks so as to submit artificially balanced financial results while the actual amount of the deficit was growing. Costs of pension funds, funding of municipalities and other 1500 government organizations were not included in the budget for many years. They were recorded in the gross deficit, but not in the budget. Тhe government has turned many public organizations into limited liability companies to guarantee their funding and when they needed additional funding the government resorted to a capital increase.

Another common practice is the late entry of certain revenues and expenses so that the budget for the current period to be eligible while the deficit is recorded in a future period. When the government of New Democracy was in power armaments costs were not recorded neither in the budget nor in the external debt. They were recorded as supply of materials. After Eurostat has reviewed the data the practice has been suspended and the cost of state armaments were recorded in the budget.
 
Capitalization of interest relating to budget costs and its turning into a loan also proved to be one of the quick government decisions which has helped to increase the foreign debt in the long term. When the state could not pay the interest on loans it was granted it capitalized them in new bonds. This didn’t affect the budget deficit, but it burdened the foreign debt.
 
While the last details concerning the value of the 2009 deficit are discussed in Athens, the council of the EU finance ministers Eurogroup and Εcofin are in session in Brussels. The Greek Finance Minister George Papakonstantinou will report during the session on the local economy development. Expected are technical discussions for extending the repayment of the loan granted by the eurozone countries and the International Monetary Fund in compliance with the Memorandum of financial support. According to the European Commission reports, the European Central Bank recognizes the strict implementation of fiscal consolidation in Greece but there are still concerns about the impact of the budget deficit restatement.

 

Tags: EconomyMarketsBudgetDeficitGreek external debt
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