Banks in secret army debt pact?

Will service 7 bln over 3 years

By D.G. Papadocostopoulos - Kathimerini

The ministries of Finance and National Defense have made a secret agreement with a group of Greek and foreign banks to service Greece’s military debt, which today exceeds 7 billion euros, sources say. This serves the government’s aims of easing pressure on the 2004 budget while allowing further room for pre-election handouts.

Servicing the debt will be on a three-year basis, during which the banks will be called on to pay more than 2 billion euros in interest and principal, in exchange for a very high price which the State will pay as it has its back to the wall with regard to excessive spending.

The military debt equals 5 percent of GDP. It is not known how much more military debt remains secret since it is hidden through purchases that are made by offshore companies who will leave the bill for future governments.

This is how Prime Minister Costas Simitis promises to save money on defense purchases in order to fund education, in accordance with his “Convergence Charter.” The Finance Ministry has repeatedly used such methods in the recent past with regard to costs (by leaving them for the future) and revenues (by registering future income). Eurostat stepped in and put an end to this in 2002.

These methods not only provided short-term aid, but also helped distort the budget deficit and public debt. But then newer tools were found for shifting costs to the future.

New Democracy’s shadow defense minister, Spilios Spiliotopoulos, recently revealed that the Defense Ministry has signed contracts worth 7 billion euros since March 29, 2001. At the same time, Defense Minister Yiannos Papantoniou claims that he has cut defense spending by 2.7 billion euros and the ministry is the sole source of funds for Simitis’s 1.7-billion-euro social package. But observers know there have not been — nor can there be — such savings in defense expenditure with the policy being followed. Clearly, the money is being borrowed.

This is being done without the citizens being told of the methods the government is using.