Further Greek chaos as new figures show EU fiscal mess

EU officials said the Greek deficit cutting target of four percent for this year still remained in place, but indicated that extra measures would be needed if the debt-ridden country was to successfully bring its deficit below three percent by 2012, as promised to Brussels.

The Eurostat figures "underline the urgency to intensify the preparations of structural reforms and additional measures for the coming years," said EU economy commissioner Olli Rehn in a statement.

Mr Rehn is in Washington for a meeting of G20 finance ministers (22-23 April), where he is also meeting International Monetary Fund chief Dominique Strauss-Kahn to discuss lending terms for Greece. The extra turmoil on Thursday prompted expectations that Athens will be forced to bring forward an application for emergency funding from a joint euro area and IMF lending package, valued at €40-45 billion.

"It's our historic obligation to take decisions that will avert the worst for Greece," Greek Prime Minister George Papandreou told his cabinet.

Reactions

Shares tumbled on the Athens stock exchange in response to the new deficit figures, while the euro currency fell to its lowest value against the dollar since last May. As markets closed, Moody's cut Greece's sovereign rating to A3 from A2.

The day saw yields on 10-year Greek bonds rising to 8.83 percent, the highest since 1998, as investor concerns over a possible debt default or restructuring intensified.

In Athens, the government promised to meet its debt obligations for next month, estimated to be in the region of €10 billion.

Greece's final deficit figure for 2009 could increase by a further 0.3-0.5 percent, said Eurostat, due to "uncertainties on the surplus of social security funds for 2009, on the classification of some public entities and on the recording of off-market swaps."

The commission is currently pushing member states and the European Parliament to give the Luxembourg-based agency greater auditing powers, after revelations last October once again highlighted the dubious nature of the country's statistics.

Contagion?

The Hellenic Republic was not alone in its overspending last year, with EU governments breaking the bloc's deficit and debt rules en masse.

The average EU27 government deficit figure rose to 6.8 percent of GDP in 2009, roughly three times higher than the 2.3 percent witnessed in 2008. Debt to GDP ratios rose from 61.6 percent to 73.6 percent over the same period.

Ireland topped the list, recording a deficit of 14.3 percent, with the country's economy currently reeling from a burst property bubble that has left banks with billions in bad loans.

Greece came second, followed by the UK on 11.5 percent, Spain on 11.2 percent and Portugal on 9.4 percent.

Bond yields for all countries rose, coming on the back of an IMF warning on Wednesday that contagion from the Greek crisis could spread to other states.

"In the near term, the main risk is that, if unchecked, market concerns about sovereign liquidity and solvency in Greece could turn into a full-blown sovereign debt crisis, leading to some contagion," the Washington-based organisation said.

Europe's fiscal crisis has led to growing talk on the need for greater European economic co-ordination. Finland's centrist prime minister, Matti Vanhanen, said on Thursday he would support controversial German proposals for a EU treaty change, if it was needed to enforce fiscal and economic discipline in the region, the Financial Times reported.