Archive for January 2013
The head of Greece’s statistics agency, Andreas Georgiou, is to face a criminal inquiry. An ex-employee of the Hellenic Statistical Authority (ELSTAT), Zoe Georganta, has accused him of colluding with the European Union’s statistical arm, Eurostat, to inflate Greece’s deficit figure for 2009, thereby justifying Greece’s EU-IMF bailout, signed in May 2010, and its drastic austerity measures. Georgiou vehemently denies the charges.
Financial prosecutors have referred the matter to a special magistrate and the Greek justice system will have to decide on the validity of each side’s arguments.
Beyond the judicial process, some observations about the case are needed as it goes to the very heart of understanding how Greece’s public finances veered dramatically off course and the country turned to the eurozone and International Monetary Fund for emergency loans.
It was just one week after the repeat Greek elections and a few days before Cyprus would assume the rotating presidency of the European Union that the island was forced to formally request a bailout after the government stepped in to strengthen the capital base of Cyprus Popular Bank and Bank of Cyprus in order to meet the end of June deadline of core Tier 1 requirement set by the European Banking Authority.
For a number of reasons, Cyprus’ formal request for a bank bailout went under the radar. Cyprus represents less than 0.2% of the eurozone’s GDP and the amounts in question were negligible (initial estimates were in the region of a total of 10 billion euros) when compared to other countries’ bailout programs. Also, all eyes at the time were on Greece and nobody wanted to spoil the celebratory mood in Cyprus as it prepared to assume the EU presidency by making the bank bailout an agenda-topping issue. Spain had also requested bailout funds and was going through the same process of assessing the capital requirements of its own banks. Bank bailout aside, there was a general expectation, after a 2.5-billion-euro loan the previous year, that Russia would step in and help cover the financing needs of Cyprus that would plug the holes of the state budget.
Greece has the potential to attain by 2020 a GDP in the region of 330 billion euros and a place in the G20, wrote the editor of a popular weekly newspaper in Greece over the weekend. This would require Greece to miraculously add 150 billion euros to its economy by the end of the decade at the same time as the 20th economy in the G20 experiences a depression similar to the one Greece has gone through in recent years. Leaving this unlikely scenario aside, the tone of the editorial captures the efforts during the festive period to change the narrative of the country’s future prospects.
Prime Minister Samaras and Finance Minister Stournaras, seem to have placed all their chips on the gradual improvement in sentiment towards and, most importantly, within the country as “drachmophobia” and “Grexit” fade away. They both expect a slow recovery of economic activity in the second half of the year, while on the fiscal side – assuming there are no accidents on the political front – the majority of the 2013 measures are on the expenditure side (as long as measures are implemented as planned and the recession does not exceed the finance ministry’s estimates) and the revenue side of the budget should be executed without any unexpected challenges. Greece next year could have a primary surplus of approximately 700 million euros and for the first time in over a decade spend less than it actually collects, excluding interest payments.
As much as it is essential to end the misery and finally have every participant in the public debate working to create a national plan that will eventually get the country out of this crisis, hopeful editorials and changing sentiment alone are not enough for the country to alter course and address the biggest casualty of the policies subscribed over the last three years, the labour market.