By George Georgiopoulos
ATHENS, April 22 (Reuters) - Greece must urgently undergo long-delayed structural reforms but will find it hard as it struggles with a one-seat majority and scandals, analysts said as the EU published worsening 2008 deficit data on Wednesday.
Last year Greece missed European Union deficit targets by a much wider margin than the government initially forecast, the gap widening to 5 percent of GDP from 3.6 percent in 2007, the EU's statistics office Eurostat said on Wednesday.
After years of robust growth, Greece's economy, which makes up about 2.5 percent of the euro zone, is at risk of stalling or even sliding into its first recession since 1993 as the global downturn hits key sectors like tourism and shipping.
"It's going to be really, really difficult," said economist Diego Iscaro at IHS Global Insight. "I don't think they (the government) can do a lot at the moment," adding that any measures to cut the deficit would lower support for a government already facing discontent with its economic policies.
Fitch Ratings agency has said it may maintain or cut its rating on Greece in the coming months as the lack of reforms makes coping with the global crisis difficult.
"The government must keep its nerve, although it has a one seat majority, it has a majority," Chris Pryce at Fitch Ratings said. "Public spending must be cut, they must continue efforts to raise taxation, to decrease tax avoidance and pursue longer-term reforms, which means obviously the pension system."
The pension needs of an ageing population are placing severe weight on Greek public finances and a reform bill passed into law last year to shore up ailing pension funds was widely criticised as inadequate.
Back on the European Commission's list of budgetary offenders, Athens is scrambling to contain the fiscal shortfall and boost revenues as it is under the gun to bring the budget deficit below the 3 percent cap by 2010.
Finance Minister Yannis Papathanassiou said on Wednesday Greece stuck to its target to cut its budget gap to 3.7 percent of GDP this year and shrink it below the EU's ceiling in 2010.
Papathanassiou, who froze public sector wages, does not rule out more steps to plug the hole, and said doomsayers would be proven wrong.
FOCUS DISTRACTED?
Amidst the economic malaise, the government's focus is distracted by an ongoing parliamentary probe into whether a former minister was involved in a bribery case of lucrative ferry routes, which could threaten its one-seat majority.
Restive unions, youth riots in December sparked by the police shooting of a teenager and a tight fiscal stance, are helping the opposition socialists widen their lead to 7.5 percentage points according to the latest polls.
Wednesday's fresh data on the current account deficit, which ballooned to 14.5 percent of GDP last year, showed some improvement but this is mostly reflecting falling imports as the economy weakens and the trade gap contracts.
The Bank of Greece, which expects the current account gap to drop to about 12.5-13 percent of GDP this year, has urged structural reforms to boost export competitiveness and tackle a chronic woe threatening growth and jobs in the longer term.
It has warned against fiscal relaxation which could result in higher borrowing costs and prove counterproductive. Greece has seen spreads of its 10-year bonds over German Bunds widen beyond 300 basis points recently but has faced no problem in its borrowing sorties so far.
The spread stood at around 230 basis points on Wednesday. Greece has already borrowed more than 36 billion euros so far this year versus a targeted 43.7 total need for 2009.
Pryce said he expected the deficit to be about the same this year as last year. "Greece will suffer from falling tourism, we still have no idea how sharp the decline will be," he said, adding that shipping was also a problem.
For a table on 2008 deficit data click on [ID:nLM548677].
For more comments on the data click on [ID:nLM398806] (Additional reporting by Ingrid Melander; editing by Stephen Nisbet)