December 13, 2011 / 3:51 PM / 8 years ago

UPDATE 1-Greek budget hole widens, targets tougher to reach

* Central govt budget gap grows 5.1 pct y/y in Jan-Nov
    * Construction down 38 pct in January-August
    * Greece likely to miss 2011 budget deficit target - source
    * Greece borrowing costs increase in T-bill auction

    By Ingrid Melander and Harry Papachristou	
    ATHENS, Dec 13 (Reuters) - Greece's yawning public
deficit widened in the first 11 months of the year, putting
budget targets further out of reach, while building activity
plunged by more than a third since the start of the year, data
on Tuesday showed.	
    With international officials and bankers in Athens to work
on details of a new 130 billion euro bailout package, the data
underlined the stark challenge facing the technocrat government
of former central banker Lucas Papademos.	
    "The recession will be deeper than the government and the
troika are expecting," Capital Economics analyst Ben May said,
referring to the joint inspection team from the European Union,
European Central Bank and International Monetary Fund .	
    "Greece will struggle to reduce its budget deficit and will
come under more pressure for austerity. There is certainly a
risk that Greece may well come to the point it decides it might
be best to default," he said.	
    Choking on debt amounting to 160 percent of gross domestic
product and forecast to enter its fifth year of recession in
2012, Greece's weakened economy is staggering under the repeated
doses of austerity prescribed by its international lenders.	
    Finance ministry data on Tuesday showed the budget gap of
the central government widened 5.1 percent to 20.52 billion
euros ($27.1 billion) in the first 11 months of the year.	
    The data suggests Greece could miss its target of cutting
the deficit to 9 percent of GDP from 10.6 percent last year and
may force the government to impose additional austerity measures
to catch up with its budget goals in 2012.	
    Greece and its international lenders expect the economy to
shrink by at least 5.5 percent this year and bleak construction
data showed on Tuesday that a deep slump continued in what was a
key driver of the country's growth when it joined the euro and
organised the 2004 Olympics.	
    Building activity by volume contracted 37.8 percent in the
year to August while the number of new building permits dropped
by 30.6 percent.	
    As inspectors from the EU/ECB/IMF troika combed through the
books in Athens, private bondholders, also meeting in the Greek
capital, failed to agree with the government on the outline of a
bond swap that is part of the deal, and agreed to continue
    This year's budget goals largely hinge on a string of
emergency taxes imposed in September after Greece's lenders
threatened to withhold bailout funds if it did not meet its
budget goals. The recession has since cancelled out much of the
extra revenues the government was hoping to raise.	
    With the year almost over, the finance ministry insisted
that the 2011 budget target was still on track, despite the
wider deficit figure reported on Tuesday.	
    "The current revenue shortfall is expected to be addressed
in December, when (emergency) tax measures will yield results,"
it said in the statement.	
    But a senior government official was less optimistic. 	
    "If current spending and revenue trends continue, the
deficit will be at about 10 percent of GDP and not at about 9
percent," the official, who declined to be named, told Reuters
before Tuesday's budget data were announced.	
    The new taxes included a charge of up to 5 percent on gross
personal income as well as a controversial property tax which
households must pay or face having their electricity cut off.	
    These measures have failed to boost net tax receipts, which
shrank 3.1 percent year-on-year in Jan-Nov, a slightly slower
pace than a 4.1 percent drop in the first 10 months of the year.	
    Recession is dealing a further blow to the budget as the
government steps up grants to social security organisations,
whose revenues are drying up. Spending before interest payments
rose by 3.0 percent year-on-year in Jan-Nov.	
    The data refer to the state budget deficit, which excludes
items such as local authorities. Even though they are not
identical, they are indicative of the general government
shortfall, the benchmark for the EU's assessment of Greece's
economic policy programme.	
    Greece had to pay a higher price to sell T-bills on Tuesday,
when the debt management agency sold 1.625 billion euros of
six-month T-bills but saw the yield rise by 6 basis points to
4.95 percent from a previous auction in November.  	
    Monthly T-bill sales have been Greece's sole source of
market funding since it was shut out of bond markets early last
year when its derailed finances triggered the country's worst
crisis in decades. 	
    The country's cash deficit decreased slightly in the first
11 months of the year to 20.24 billion euros from 21.38 billion
in the same period 2010, central bank data showed, largely
thanks to privatisation receipts.
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