UPDATE 3-Deficit that sparked Greek crisis tops 15 pct-finmin
* Eurostat revision to show 2009 budget gap above 15 pct
* GDP to contract by 2.5-3 pct next year - Papaconstantinou
* On track on fiscal targets, nothing won yet
* Analysts say deficit revision expected, reforms needed
(Adds analyst comment)
By Sarah Ktisti
LIMASSOL, Cyprus, Oct 27 (Reuters) - Greece's 2009 budget deficit, whose wildly gyrating figures triggered the country's fiscal crisis, will be set "once and for all" at above 15 percent of GDP, the finance minister said on Wednesday.
George Papaconstantinou said the EU's statistics office would set the much-revised deficit at five times initial estimates -- a level that did not surprise economists but which showed the scale of the task to fix Greece's broken finances.
Greece's 2011 draft budget earlier this month estimated the 2009 deficit at 13.8 percent of gross domestic product but Eurostat is expected to revise the deficit upwards in mid-November.
The Socialists revised the 2009 budget deficit to 12.5 percent of GDP from a previous 6 percent forecast after coming to power last year, triggering the country's worst fiscal crisis in decades and sending shockwaves throughout markets worldwide.
Greece has cut public sector wages by an average of 15 percent, frozen pensions, increased VAT to 23 percent and slashed public investments as part of a multi-billion euro austerity plan agreed with the EU and the IMF.
"Remember the 2009 budget was projecting a deficit under 3 percent, then a few days before the (Oct. 4) election the reported deficit to the EU Commission was 6 percent," Papaconstantinou told a conference in Cyprus.
"We realised it was over 12 percent. And actually, even after the final revision by Eurostat ... which will validate Greek numbers for 2009 once and for all, it will be above 15 percent. We are talking about a fivefold difference."
Analysts said the upcoming revision was expected and should have a more limited impact. [ID:nLDE69Q19P]
They said that if the revision was down to a few one-off costs it would not threaten long-term goals but if structural costs were kept off the the balance sheet, then more austerity measures may be needed to meet targets.
"Lots of people had been expecting that this (revision) was quite likely so I am not sure it will have a dramatic impact," said Ben May, at Capital Economics. "But it obviously underlines the tough task that Greece will face to cut its deficit to 3 percent in the coming years."
The cost of insuring Greek debt against default rose on Wednesday as risk aversion to the sovereign continued to grow after a series of negative comments, while bonds sharply underperformed German debt.
Five-year credit default swaps (CDS) on Greek government debt rose to 730 basis points, up 49 bps according to data monitor Markit. This means it costs 730,000 euros to protect 10 million euros of exposure to Greek bonds. [ID:nLDE69Q14D
"NOTHING WON YET"
The ruling Socialists plan to slash the budget deficit to 7.8 percent of GDP this year and cut it further to 7.0 percent in 2011.[ID:nLDE693195]
"On the fiscal front nothing is won yet," Papaconstantinou said, while adding: "We are on track and will continue to be on track."
Papaconstantinou told the same economic conference that the country's economy would contract by between 2.5 and 3 percent next year.
In the 2011 draft budget, published earlier this month, the government estimated that GDP would shrink by 2.6 percent next year from a 4 percent contraction in 2010, as an austerity drive takes its toll.
The Mediterranean country's economy has been hit by tough budget cuts prescribed by the 110 billion euro ($153.5 billion) EU/IMF bailout deal agreed to pull the country out of its debt crisis. (Additional reporting by George Georgiopoulos and Harry Papachristou; writing by Ingrid Melander; editing by Stephen Nisbet)
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