Greece Falls Short of Austerity Goals
The New York Times reports:
LONDON — The mathematics of austerity are getting harder.
With economic conditions weaker than expected, tax revenue is coming up short of projections in parts of Europe. As a result, countries struggling with high deficits are now confronting the prospect that they will miss the budget deficit targets forced upon them this year by impatient bond investors.
Greece, for one, looks as if it will run a budget deficit for 2010 greater than the 8.1 percent of gross domestic product it agreed to as part of a rescue package from the International Monetary Fund and the European Union that amounted to more than $150 billion, according to a person briefed on the matter but not authorized to speak about it.
The adjustment, at worst, would result in a deficit of 8.9 percent of Greece’s output, this person said. Normally, such a small difference would not be cause for alarm.
But after the latest upward revision in Greece’s 2009 deficit — to about 15.5 percent from 13.5 percent of output — the miss has spurred investor fears that the Greek government will be unable to close the gap and that Greece may ultimately be forced to restructure its mountain of debt with foreign investors.
As word seeped into the market on Wednesday, Greek 10-year bond yields jumped to 10.3 percent, from 9.3 percent. That more or less reversed what had been an impressive bond market rally, when yields fell from more than 11 percent to just under 9 percent over the last month. The cost of insuring Greek bonds against a possible default also rose.
A spokesman for the Greek finance ministry declined to comment.
There has not been any suggestion from the I.M.F. or the European Union that this slip represents a lack of resolve by Prime Minister George A. Papandreou to maintain the harsh spending cuts, structural reforms and tax increases that lie at the heart of the Greek reform effort.
