* Greece says to cut deficit below euro zone ceiling by 2014
* Eurostat revises Greek deficit, debt sharply upwards
* Greek PM says German stance may cause sovereign defaults
(Adds economists comment, PM statement)
By Harry Papachristou
ATHENS, Nov 15 (Reuters) - Greece promised on Monday to stick to its deficit cutting plan while its prime minister said Germany’s tough stance may push debt-laden European nations such as Portugal and Ireland to bankruptcy.
Greek Prime Minister George Papandreou said Germany’s insistence on a future mechanism for banks and bond markets to share the pain of any euro zone sovereign debt default from 2013 could break some EU economies.
“This could break backs. This could force economies towards bankruptcy,” Papandreou said during a visit to Paris. [ID:nBAT005767]
Bond yield spreads of deficit-ridden nations such as Greece, Ireland and Portugal have soared since German Chancellor Angela Merkel last month kicked off a debate about a debt restructuring mechanism for troubled euro zone nations, although EU finance ministers have since said it would not apply to existing bonds.
“It created a spiral of higher interest rates for countries that seemed to be in a difficult position, such as Ireland or Portugal,” Papandreou said. “This could create a self-fulfilling prophecy.”
Ireland on Sunday did not rule out turning to the European Union for help as its officials hold discussions with European counterparts. [ID:nLDE6AD09T].
The euro zone’s debt crisis erupted last year, when Papandreou’s government revealed that his country’s finances were in much worse shape than previously expected.
On Monday, the EU’s statistics agency Eurostat revised upwards Greece’s 2009 deficit for a third time, to 15.4 percent of GDP compared with a previous 13.6 percent estimate.
SPECTRE OF DEBT RESTRUCTURING
Greece’s finance ministry said it would still manage to bring the shortfall below the eurozone’s 3 percent of GDP ceiling in 2014, despite the revision, starting with a 6-point cut this year to 9.4 percent of GDP.
Greece’s debt is now seen swelling to 144 percent of GDP this year from 126.8 percent of GDP in 2009. Under previous estimates published last month in the country’s 2011 draft budget, the debt figure was supposed to rise to 133 percent of GDP this year from 115 percent of GDP in 2009.
The revised figures suggest that Greece will find it hard to avoid a debt restructuring, some analysts said.
“I believe we are getting closer to a debt restructuring... I think it is rather unlikely that Greece will make it without one,” said Burkhard Allgeier, an economist at German bank Hauck & Aufhaeuser.
EU and IMF officials arrived in Athens for an inspection visit of the country’s finances on Monday. Greece is expected to announce new spending cuts of about 4.5 billion euros in its 2011 budget later this week, to comply with its fiscal consolidation plan under its 110-billion euro bailout.
“These new measures should ensure that the government receives its third tranche of funds in late November or early December, but they will prolong the recession,” said Ben May, an analyst at Capital Economics in a note.
Meanwhile, German Chancellor Angela Merkel reiterated on Monday her strong backing for the euro, saying the European Union would fail if the euro were to fail. [ID:nBAT005767]
Analysts said Greece’s woes could make the IMF/EU bailout plan even more difficult to implement.
“That Greece will miss its (2010 deficit) target will spell difficulties for the IMF and the EU,” said Christoph Weil, an economist at Commerzbank in a note. “Greece mismanaged its finances even worse than assumed.” (Additional reporting by Erik Kirschbaum and Brian Rohan in Karlsruhe, Lefteris Papadimas in Athens, Nicholas Vinocur in Paris; Editing by Ruth Pitchford)