If there is one single eurozone economy whose failure and bailout warrants no mystery, it is Greece’s. Unlike Ireland or Spain, Greece failed in the most predictable way.
“There is nothing more unpredictable than the past,” experts on Soviet-era methods used to say. Government has the means to elevate its story into official history. It can create scapegoats to deflect attention from the real culprits. It can devise diversions and fictitious conspiracies. It can propagate hearsay, which with the help of unscrupulous media will become “news,” and with any luck a court case. And thus history can be rewritten or a narrative can become salient in the public sphere.
The reactivation of the criminal prosecution against Andreas Georgiou is emblematic. The former head of the independent Statistical Authority (ELSTAT) is accused of undermining the national interest by colluding with Eurostat to inflate the public deficit and debt figures in 2010, leading to higher official financing needs and heavier austerity. A case that should have never been introduced is now being resurrected in court and exploited by politicians in the SYRIZA-Independent Greeks coalition. It is also being rekindled by certain prominent officials who were members of Costas Karamanlis’s New Democracy government in 2004-09, which bears most of the blame for the explosive deficits that led to Greece’s financial meltdown. The government benefits from the revival of the Georgiou case in that it creates division inside the ND opposition party, whose new, reform-minded leader Kyriakos Mitsotakis is seeking a break from his party’s clientelistic practices of the past.
The supposed inflation of the 2009 deficit figure is the foundation stone of the “anti-memorandum” demagogy. According to this myth the budget deficit for 2009 was artificially bloated, with the help of “executioner” Georgiou (as the SYRIZA daily Avgi branded him) in order to force Greece into a heavy bailout program. The absurdity of this allegation has not prevented it from acquiring a life of its own in the shadier sections of the media ecosystem, systematically reproduced by politicians of the demagogic left and the irresponsible right.
Let’s take a look at the actual facts. In October 2009, the European Commission estimated the 2009 fiscal deficit at 12.7 percent of gross domestic product. In April 2010, Eurostat revised the deficit upward to 13.6 percent, and subsequently in November 2010 to 15.4 percent. Correspondingly, the public debt was also revised from 115.1 percent of GDP in April 2010 to 126.8 percent in November 2010. Both dealt a severe blow to the government of George Papandreou, which was forced by the troika to take additional fiscal measures. The revision contributed to an already harsh fiscal consolidation, which further amplified the recession. But it also made things difficult for Greece’s eurozone partners, who appeared to be financing a fiscal wreck of a country, a bottomless pit. It is hard to discern what the supposed motives for inflating the deficit could be, other than the actual reason: that the deficit was revised to 15.4 percent because that is indeed how much it was.
Why the upward revision? The deficit was revised to conform to Eurostat’s European system of national and regional accounts (ESA95) – which hadn’t been applied until then – and included 17 loss-making general government corporations, transfers to social welfare organizations, other expenditures and obligations, as well as past off-market transactions about which the European Commission had not been notified. Given the lamentable record of Greek statistics, the country needed to come clean. Those attacking Georgiou are implying (or even explicitly stating) that he should have continued to misrepresent the official numbers, which would not have been possible anyway, given the post-2010 close scrutiny of Greek statistics.
The myth of the “inflated deficit” feeds another associated myth: that the bailout could somehow have been avoided if it hadn’t been for the bloating of the deficit figures. For one thing, Georgiou took office four months after the country had resorted to the April 2010 bailout. But there’s more. If there is one single eurozone economy whose failure and bailout warrants no mystery, it is Greece’s. Unlike Ireland or Spain (where private sector imbalances led to the crisis), Greece failed in the most predictable way, through excessive fiscal imbalances and public over-indebtedness, as warned against by every orthodox EMU textbook. With public expenditure at 53 percent and revenues at 38 percent of GDP, the Greek economy was sleepwalking straight to the edge of the cliff. The public debt rose from the area of 140 billion in 2000 to 240 billion in 2007 and 300 billion in 2009. Greek governments failed to curtail the debt/GDP ratio despite a long period of rapid growth until 2008, instead running primary budget deficits every year from 2003, adding new debt, especially foreign debt. Under a spiraling budget deficit (shadowed by a gaping current account deficit) the country was shut out of the markets. And instead of reflecting on the causes of the fiscal imbalances, the denialists of the leftist/right-wing populist coalition are prosecuting the person who gauged their magnitude. Portugal entered its own bailout program with much more modest imbalances (a fiscal deficit of 9 percent in 2010 and public debt at 90 percent) and yet no one dared to suggest that someone had manipulated the numbers to force it into a memorandum.
The most worrying part is not the prosecution itself of Greece’s first independent chief statistician, who transformed a disgraced government service into a respected statistical authority. It is not that the country is once again facing discredit internationally for the poor functioning of its institutions. It is not that the government is desperately seeking to produce any news that will obfuscate the glaring fact that since July 2015, the economy has undergone four consecutive quarters of year-on-year negative growth, after experiencing six quarters of weak but positive growth between 2014 and mid-2015. It is not even that such political tactics come at a sizable economic cost, undercutting the country’s credibility, raising the risk premium, discouraging potential investors, prolonging stagnation and leading to even heavier taxes for citizens and businesses that have already exhausted their limits of financial endurance.
The worse of all is perhaps the sad reminder that, seven years into this awful crisis, the clientelistic and populist half of the political system (the leftist/right-wing government coalition in tandem with the apologists of the fiscal recklessness up to 2009) refuse to abandon their old tricks, despite voting for adjustment programs and reforms, and despite claiming to implement them. Like the Bourbons of the Ancien Regime, they seem to have learned nothing and forgotten nothing.
George Pagoulatos is professor of European politics and economy at the Athens University of Economics and Business.