Greece moves close to brink

GREECE’S horrendous week got worse yesterday when its yawning budget deficit was revised by nearly one percentage point, and it was hit with another debt downgrade sparking a fresh bout of worry in bond markets.

Eurostat, the European Union’s statistics agency, said the heavily indebted country’s public shortfall would come in at 13.6 per cent of GDP for 2009 rather than the 12.7 per cent reported earlier. Although the revision had been expected, the announcement spooked traders.

Credit rating agency Moody’s immediately cut its rating on Greek debt by one notch to A3. The yield on 10-year Greek debt soared towards 8.8 per cent while the cost of insuring five-year bonds against default rose to the highest level in Europe, overtaking Ukraine. Nick Kounis of Fortis said: “The situation already looked pretty terrible before this latest setback. The deficit is now even bigger.”

Athens and the European Commission appeared to back away from the previous target for Greece to slash its deficit to 8.7 per cent of GDP this year. They said simply that it would reduce the shortfall by four percentage points.

Analysts said Greece could now need a second rescue package.