By Dimitris Kontogiannis
Greece would have been in much better shape today if it had paid more attention and worked harder to improve its image abroad. Unfortunately, it did not do so and now has a much more difficult task to undertake since it has to correct sizable economic imbalances while facing the consequences of negative perceptions abroad.
However, it is never too late to start undoing part of the damage, starting with the popular story abroad that says Greece cheated its partners to join the eurozone.
It is not easy to say which events have done the most damage to Greece’s reputation and credibility in the European Union countries and elsewhere. Undoubtedly, the inability of the previous government to honor its commitments under the economic adjustment program agreed with the EU, the International Monetary Fund and the European Central Bank has kept it in the headlines of the international press, compounding the damage.
However, the greatest damage has been done by the widely circulating stories saying that Greece fiddled with its statistics and cheated to enter the eurozone, as well as those portraying it as a corrupt country.
Unbelievable as it may sound, former Premier George Papandreou, whose family had governed this country for decades with him serving as a minister in the 1990s and early in the first decade of the new century, reportedly did not hesitate to tell some senior EU officials back in December 2009 that he governed a corrupt country.
Can anyone imagine the former Italian PM Silvio Berlusconi, who had governed his country for a long time, going to an EU summit and telling his colleagues that he was in charge of a country where the mafia ruled? Of course not. First, because he knew this would have caused a great deal of damage to his country and his own work and, second, because it was not true.
Some have suggested the former Greek premier did so because he wanted to make a distinction between his administration and the previous ones, including his father’s, and win the sympathy of his EU colleagues. Whatever the case, it was another ill-thought-out move that helped solidify Greece’s negative image among EU policymakers and public opinion in other countries.
Papandreou’s reported comment was as correct as the popular claim in some Northern European creditor countries that the Greeks are lazy, which is easily rejected by OECD data. This of course does not mean there is no corruption in Greece. We would argue it is rather elevated compared to the north and the root of the problem is in the public sector. This problem has grown since 1981 when the Socialists came to power to govern 21 out of the last 30 years.
Of course, the story about how corrupt Greece is would have fallen on deaf ears had it not been for the infamous Greek government statistics, an issue raised twice before. First, by the socialist PASOK government elected in October 2009 and second by its predecessor conservative New Democracy government elected in March 2004.
We have no intention of discussing whether Greece indeed cooked its books or if the numbers were simply incorrect because they were the result of inadequate or even absent procedures in data gathering and processing.
However, we do think it is totally unfair to suggest that Greece cheated its EU partners to enter the EMU. It should be noted the country entered the eurozone in 2001 based on 1999 data while the other countries entered the euro league in 1999 based on the 1997 figures. The countries had to meet the nominal convergence criteria set out by the Maastricht Treaty. One of the criteria wanted the candidate countries to have a budget deficit below 3 percent of GDP in the year of evaluation.
Greece did meet the criteria till the finance minister of the newly elected conservative government, Giorgos Alogoskoufis, pursued a fiscal audit with the cooperation of Eurostat, the EU’s statistical service. The revisions to the Greek data resulted in a general government budget deficit of 3.07 percent of GDP in 1999, the evaluation year.
This revision became the battle cry of many who claimed Greece cheated and should not have been allowed into the eurozone in the first place. Still, the excessive budget deficit was mainly the result of a change in the accounting rule of recording military procurements.
Up to the fiscal audit, Greece would record in the government accounts the cost of an aircraft or military ship bought at the time of delivery. Following the fiscal audit, the accounting rule changed with military purchases recorded at the time the contract was signed. Since Greece had placed lots of orders in the late 1990s, the change burdened those years and lightened the budget burden in the years ahead.
It is ironic that nowadays eurozone countries use the delivery method, which would have produced a budget deficit below 3 percent for Greece in 1999, according to a person with good knowledge of this issue.
Moreover, France, with a budget deficit of 3.31 percent of GDP, Spain, with a deficit equal to 3.37 percent of GDP, and Portugal, with a 3.38 percent of GDP deficit in 1997, their evaluation year, also violated the treaty, according to the AMECO database of the European Commission. (DG ECFIN).
Even Germany, whose budget deficit stood at 2.64 percent of GDP in 1997, may have violated the treaty if unification-related debt and assets assumed by the federal government in 1997 equal to 116.3 billion euros were included.
All in all, it’s time for Greece to tell its story and provide the facts about its entry into the eurozone. It’s difficult to change perceptions abroad, but it should start somewhere.