Corruption costs Greek economy $1 bln a year - watchdog

ATHENS (Reuters) - Corruption cost Greece about $1 billion last year, watchdog Transparency International said on Tuesday, up 5 percent from the year before, with state hospitals, urban planning and tax offices the most corrupt.

The report came a day after Prime Minister George Papandreou identified graft as a root cause of the country's fiscal crisis.

Transparency International estimated the cost of petty corruption at about 800 million euros ($1.08 billion) last year, an increase of 39 million euros compared with 2008.

Costas Bakouris, head of the anti-corruption watchdog's Greek office, said the findings went some way towards explaining the poor state of Greece's public finances.

"It's tax evasion which has caused a big deficit in state coffers," Bakouris told reporters, urging the government to set up an anti-corruption authority as part of measures to overcome its debt crisis and regain credibility.

"If we don't take action we cannot overcome the fiscal crisis," he said.

Papandreou on Monday identified corruption and impunity as a key cause of Greece's debt crisis and said the country should deal with them urgently in order to overcome its fiscal problems.

In recent years Greece has dropped several notches on Transparency International's corruption index and continues to rank as the most corrupt state in the euro zone.

The group said it's poll of 6,000 people carried out by pollster Public Issue found that the average bribe last year was 1,355 euros in the public sector and 1,671 euros in the private sector.

Some 13.4 percent of people surveyed reported cases of corruption compared with 13.5 percent in 2008.

On the upside most respondents were confident that the new government, which took office on Oct. 4, could tackle corruption more effectively than its conservative predecessors.

Of those surveyed 60 percent said Greece could become corruption-free after last year's election, compared with 51 percent in the previous poll.

(Reporting by Angeliki Koutantou; Editing by Paul Hoskins and Jon Hemming)