The Prodigal Greek

The Greek crisis through a different prism

Adding insult to injury

with 4 comments

On Monday in Oslo, the three presidents of Europe’s main institutions, Jose Manuel Barroso of the European Commission, Herman Van Rompuy of the European Council and Martin Schultz of the European Parliament accepted the Nobel Peace Prize on behalf of the European Union.

The union was formed over 60 years ago to prevent another devastating war but divisions in Europe are resurfacing and many have questioned the decision of the Nobel committee and the timing of the award. Divisions between North and South, debtor and creditor countries, core and periphery and most alarmingly divisions in the quality of life and future prospects as the people in southern Europe are facing a debilitating crisis, to large extent self-inflected by the Brussels doctrine disguised behind the name of structural reforms.

In Greece, the severe, punitive and miscalculated – as recently admitted by the IMF – austerity that is dictated by the troika over the last two and half years, has turned the debt crisis into a social and humanitarian one as the Greek state is incapable of providing basic public services. Peace is nowhere in sight as anti-austerity protests have more often than not been met with incidents of police brutality and extensive use of teargas while peaceful demonstrations have turned into outright street rioting. For many in Greece this peace Nobel Prize added insult to injury.

In an interview with CNN on the award day, the three presidents of the European institutions added more insult. When the interviewer brought up the usual misinformation that Greece entered the eurozone by lying about its budget deficit, they left the question unchallenged although they are fully aware that this argument is false. Martin Schultz “wittingly” added that this was done with strong support from Goldman Sachs.

This is shameful and hypocritical from the presidents of institutions who, whether they like it or not, also represented Greece at this ceremony. Greece has played an equal role with every other country in Europe to keep the peace for which this prize was awarded.

It is a myth that Greece falsified its statistics to join the eurozone. A myth encouraged by some politicians and reproduced by certain media in northern Europe at the start of the crisis, to serve the purpose of isolating and blaming the “cheating Greeks” for what later evolved into a full-blown European crisis.

Greece was accepted in the eurozone during the European Council in Santa Maria de Feira – in Barosso’s Portugal – in June 2000 based on the statistics of the year 1999 when the budget deficit stood at 2.5% of GDP.

It was in 2004, four years after Greece’s admission to the eurozone, that the newly elected New Democracy government – taking advantage of the ambiguous Eurostat reporting guidelines – decided to change the method of reporting military procurements in an attempt to win political clout, score points against its archrival PASOK and lighten the expenditure burden during its term in office.

They decided to adopt the method of recording the full expenditure upon the payment of the deposit instead of recording upon delivery as it was done up to that point. Retroactively applying this change had an impact on the budget figures of prior years, something that severely damaged Greece’s reputation and, unbeknownst back then, would return to haunt the country six years later.

Even accounting for this change in reporting methodology, the 1999 budget deficit was revised to 3.07% from 2.5% that was initially reported using the upon delivery method. As much as the responsibility of this move lies with the Greek government that decided the change for micro-political gains, it also lies with Eurostat, which accepted the change when only two years later, in 2006, it decided that the correct method of recording military equipment spending was upon delivery, exactly the way that Greece reported it in the year 1999 that was the benchmark for its euro admittance.

The other often repeated misconception is that the swap with Goldman Sachs was used to disguise Greece’s deficit before it entered the eurozone. This indicates ignorance and, in some cases, intentional misguidance. First of all, this deal has nothing to do with Greece’s acceptance criteria in the eurozone as it took place at the end of 2001, a year and half after Greece was accepted in the euro. Secondly, these swap arrangements were fully compliant with Eurostat regulations at the time and Greece is not the only country that has used such instruments for debt management.

The one and only case when a Greek government intentionally attempted to under-report the budget deficit was the New Democracy government of Kostas Karamanlis during 2009 when Mr. Barroso’s Commission was repeatedly turning a blind eye and allowed the falsification of the growing deficit. It even permitted the government of Karamanlis – Barroso’s fellow European People’s Party member – to stop publishing monthly budget execution reports ahead of European Parliament elections in June of 2009. It also accepted in September 2009 without scrutiny an annual deficit “forecast” figure of 6% when the deficit on a cash basis in August was already at 8% and was reported by the Bank of Greece.

In spite of the fact that these events are well known to the three presidents present in the interview, none of them felt obliged to stand up for a fellow partner and challenge the unsubstantiated arguments of a question that once again publicly defamed Greece on an occasion that was supposed to honour all member states and the Union as an institution.

As this crisis unfolds, many have commented that apart from its technical characteristics, a leadership deficit was revealed at the respective country and European institutions level. The three presidents of the EU better keep in mind that the Nobel prize that they received a couple of days ago was for the great achievements of European leaders during the last 60 years who managed to keep a continent together and bring it closer than it has ever been in its long history. The current leadership has performed below par and that CNN interview was the epitome of their lack of vision and solidarity.



Written by Yiannis Mouzakis

December 12, 2012 at 10:57 am

4 Responses

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  1. Actually Goldman Sachs approached Greece in 2002 when Greece was already cooking the books…Goldman Sachs devised a whole lot of complex financial instruments in the form of cross-currency swaps where Greek government debt, issued in dollars and yen, was swapped for euro debt for a certain period. This was to be exchanged back into the original currencies at a later date. But by pushing it out into the future, the swap swap didn’t show up in the Greek debt statistics which in turn hid and obscured the extent of the Greek budget deficit. As a result, in 2002 the Greek deficit was calculated at only 1.2 per cent of GDP, getting Greece into the EU.
    “Eurostat was not informed until recently of this alleged currency swap transaction made by Greece,” spokesman Johan Wullt said…

    So actually Greece lied…


    December 12, 2012 at 5:23 pm

    • If you had read the article, according to the author (and as you state), GS approached Greece in 2002 – two years after Greece was admitted into the Eurozone based on the its 1999 budget figures which were reported correctly at the time. So actually Greece did not lie.


      December 12, 2012 at 8:57 pm

  2. There is no national solution to Greece’s crisis, only an international one. Let us not forget that Germany’s boom is a boom only for German industrialists, paid for by a decade of wage cuts for German workers. And Germany benefits enormously from the euro, which is very undervalued for Germany at the same time it is very overvalued for countries like Greece and Spain.

    But what happens when living standards are driven so low in Germany’s export markets that its exports slump? German workers can’t make up the difference because their wages are lower. Inevitably, that means austerity is coming to Germany and elsewhere in the eurozone north. German capitalists will say to German workers: More wage cuts for you, or we move production overseas.

    European capitalists and the E.U. bureaucrats who love them seem to believe they can win forever through austerity, but the remorseless laws of capitalist competition will not exclude them.

    Systemic Disorder

    December 12, 2012 at 7:56 pm

  3. Excellent post! Thank you!

    Sorry, this is a bit off topic, but I wonder if you have heard anything about the following, which came from an english journalist:

    “I’ve received an excellent tip/story about German property investment firms lining up strapped Greek citizens to front funds in Greece, which can then be used to buy up forced-sale properties cheaply and avoid German tax.
    I have two good German sources looking at the provenance of it.”


    December 13, 2012 at 8:56 am

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