Finance Minister George Papaconstantinou, who has only been in office since the Greek general election earlier this month, received a public dressing-down in Luxembourg from Jean-Claude Juncker, the chairman of the Eurogroup. The Eurogroup brings together the finance ministers of the 13 countries which use the euro, the European common currency.

"The game is over," Juncker said, "we need serious statistics."

Papaconstantinou found himself forced to revise his country's growth forecast for 2009, saying the recession was worse than expected, and that the Greek economy would shrink by "around 1.5 percent" this year, rather than expand by 1.1 percent as previously predicted.

The government also raised eyebrows in the European Union after it doubled its 2009 budget deficit forecast to 12.5 percent of Gross Domestic Product (GDP). Euro-zone rules stipulate that annual budget deficits may not exceed three percent of GDP.

The uproar over the size of the Greek deficit recalls an incident at the start of the decade, when Athens under-reported its national debt in order to qualify for the euro-zone.

Dire warnings from the new Greek government

In his defense, the finance minister said, referring to the recent election: "This is a difficult transition period and we find ourselves in a financial impasse."

"We are in a marathon to readjust our finances and hope to bring the public deficit down below 10 percent in 2010," Papaconstantinou said.

Prime Minister George Papandreou, who came to power after his socialist PASOK party won the elections on October 4, warned last week that Greece's finances were in what he called "a state of emergency."

"The situation of our economy is explosive. We face a derailment of public finances without precedent," the prime minister said.

The new Greek government has promised Brussels that it will start consolidating public finances with new laws that will "change the fundamental mechanics" of the tax collection system, which has collapsed in the last few months.

Finance Minister Papaconstantinou also pledged to grant independence to Greece's National Statistics Office, acknowledging that the agency's reputation had suffered in the past from being too close to policymakers.

Greeks are worried the news could stall economic recovery

For the Greeks themselves, the news is another blow in a country that has been struggling to cope with the effects of the global recession.

Political scientists Eftymios Tsiliopoulos told Deutsche Welle he wasn't sure the government could handle it. "The deficit is very high," he said, "and what really bothers me is that this will mean that Greece will be borrowing on very bad terms and burdening the debt far worse that it has been so far. So, we'll see continuing rising debt. Is the government capable of lowering it - I don't know."

But is it really all that bad?

Senior financial analyst Christos Constas is one of several people saying the figures projected by the Greek government are higher than the real numbers.

"The truth is that the government under PASOK is now exaggerating the deficit numbers to gain the grace period every other eurozone country has to put its economy in order," he told Deutsche Welle.

The new government in Athens has already said that it wants to negotiate with the European Union on a three-year grace period to get its deficit back under the three percent of GDP prescribed by the bloc's financial rules.

gb/APF/Reuters

Editor: Michael Lawton