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Greek budget deficit larger than forecast

Greece

Greece, scrambling to persuade markets it can avoid a debt restructuring, pledged on Tuesday to redouble efforts to plug a budget gap which euro zone figures showed hit a bigger than expected 10.5 percent of output last year.

The upward revision by Eurostat of the 2010 deficit from 9.4 percent of GDP added to the fiscal burden of a government still aiming to return to bond markets before emergency funding under a 110 billion euro EU/IMF bailout expires late next year.

"The revision shows how difficult the government's job is of sticking to its fiscal promises against a backdrop of an extremely weak economy," said analyst Diego Iscaro at IHS Global Insight. "The figures will do nothing to end the constant rumours of debt restructuring we've had in recent weeks."

Investors continued to shun Greek debt on Tuesday, pushing the country's credit default swaps -- the cost of insuring against the risk of default -- as well as its short-dated yields to their highest since the launch of the euro zone.

The Finance Ministry attributed the 2010 shortfall to a deeper than expected recession and said more effort was needed in some areas of the budget including hospital spending, tax and social security evasion.

"The Greek government remains committed to achieving its deficit targets," it said in a statement. "All necessary measures in that direction are accounted for in the context of the medium-term fiscal strategy which will be submitted to parliament by May 15."

Earlier this month Athens laid out plans to sell stakes in key state firms and make further budget savings, including measures totalling 3.0 billion euros to address the fiscal slippage.

Details on the fiscal and reform measures are expected later this month.

But analysts say a weak economy makes it tougher to generate the required budget revenue and more efforts will be needed.

"The 2010 deficit figure and the underperformance of state budget revenues in the first quarter of 2011 will likely necessitate additional measures worth more than 3.0 billion euros this year to ensure fulfillment of the 2011 fiscal target," said EFG Eurobank economist Platon Monokroussos.

Greece aims to shrink its budget gap to 7.4 percent of GDP this year.

"The key thing you can learn from this is that just piling on extra programs is not necessarily going to solve the problem," said Ben May of Capital Economics.

"This is going to be counterproductive and is not the solution and something more fundamental needs to be done, whether that's a restructuring or fiscal transfers," he added.

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