"I don't know the final figure but I think it will be above 10 (percent of GDP)," said Lucas Papademos, who also is a former vice president of the European Central Bank.
His view agrees with Reuters' exclusive report on Thursday that Greece's deficit was higher than 10 percent of GDP significantly higher than previous estimates.
Greece had earlier forecast the budget gap at 9.4 percent of GDP. Its "troika" of official lenders -- the ECB, the European Commission, and the International Monetary Fund -- saw it at 9.6 percent.
Papademos told reporters at a Center for Strategic and International Studies forum in Washington that Greece should take additional actions this year to cut its deficit, even if it means a further hit to the economy in the near term.
"I think considering the magnitude of the problem, the additional adjustment required to offset the likely overage on the previous estimate should be done sooner rather than later," he said.
Debt haicuts undesirable
But he ruled out any Greek debt restructuring actions that would impose "haircut" losses on investors, saying these were unnecessary and undesirable. The negative effects on debt markets would likely outweigh any benefits from a reduced debt burden, he said.
Market concern has been growing that fiscal shortfalls and persistent economic weakness will push Greece into a restructuring. The IMF has voiced support for Greece's desire to avoid that and continue servicing its debt.
Papademos said his "first choice" on the subject of debt restructuring was to "do nothing" and fully implement Greece's austerity program, adding that Papandreou was committed to doing so. He said this may reduce activity in the short term, but it will create conditions for longer term growth.
The former ECB official declined to say what may be under consideration to restructure Greece's debt without imposing capital losses on investors, but alluded to the possibility of extending maturities.
"Debt restructuring can entail capital value losses for the holders of government debt." he said. "It can also involve a voluntary agreement to extend the maturity structure of the debt with terms and conditions that effectively do not result in any significant change in the net present value of the security."
Papademos declined to elaborate on how the latter option might be achieved.
The substantial reductions in annual deficits, even if increased, will not be sufficient to rein in Greece's overall public debt accumulation, he added. This will increase its total debt-to-GDP ratio to over 150 percent by the end of 2011 and more by the end of 2012.
However, the ratio can eventually decline if the austerity measures are implemented fully and consistently.
"Although developments on the debt front will get worse before they get better, they will get better," he added.
source: Reuters
