Deficit is ballooning out of control

The state budget’s deficit has already exceeded its original target for the year by 5.7 billion euros in the first eight months of 2009, the Bank of Greece suggested yesterday. The government had forecast a deficit of 14.2 billion euros for the whole of the year, but the 20 billion euros already recorded as of the end of August mean an excess of 40 percent and an amount representing 8 percent of gross domestic product. This is also greater than the deficit for all of 2008, which reached 17.1 billion euros. The great decline in revenues along with excessive expenditures have driven the 2009 budget off the rails, as, in the same period last year, the deficit had stood at 10.6 billion euros, or 4.4 percent of GDP. Given this data, it is likely Greece will have to borrow again from October onward in order to plug the holes that have opened up in the state budget. This development also forced Economy Minister Yiannis Papathanassiou this last week to revise upward the target for the fiscal deficit of 2009 to at least 6 percent of GDP, against an original 3.7 percent. The picture for the budget and the Greek economy in general is causing great worry for the market, which is starting to understand that in the next few months and mainly the first half of 2010, the cost of borrowing for Greece is likely to soar, a crucial factor for Greece’s debt.