“Demosthenes first taught the time value of money. There is no excuse for those who claim that Greeks cannot understand that debts with maturities of over 50 years and very low interest rates are more like gifts.” Paul Kazarian, head of Japonica Partners and a major investor in Greek government bonds, expresses his frustration with the failure of markets and policymakers to realize a pretty simple fact. Choosing to ignore this fact comes with a hefty cost.
His campaign to convince people that Greek debt is much lower than the official figures show has been ongoing for more than four years. Despite some isolated successes, the data have not changed – literally or figuratively. Meanwhile, according to Bloomberg’s World Bond Index, Greek government bonds had the worst returns of all European government bonds in the last quarter.
Kazarian claims that his investment in Greek bonds is profitable. He says that “we plan to reinvest our profits in promoting the preparation of a proper full government balance sheet,” which he considers to be “the most important reform” for Greece. However, he admits that his involvement in the case of Greece and the attempt “to contribute to the education of the Greek government and other stakeholders regarding the actual figures” on the Greek debt is “very hard work.” Perhaps this is due to the extent of the revision proposed by Japonica: The firm reports that the net debt of the country is only 72 billion euros or 41 percent of GDP (not 177 percent of GDP as reflected in official estimates).
The American investor of Armenian descent mentions that “significant progress has been made with the most enlightened current and former Greek government officials.” “The most introvert and populist do not yet understand the idea, but such people have very short political life expectancies. The European and international standards are very clear: Debt should be recorded at today’s value, not at the nominal value that it will have in nearly 50 years,” he says.
Eurostat and present value
The head of Japonica has in the past criticized the methodology imposed by the Maastricht Treaty on eurozone member-states regarding the calculation of their government debt. However, as Kazarian tells Kathimerini, Eurostat rules allow the calculation of debt in terms of present value.
“Even the excessive deficit procedure contains Table 4, which requires the recording of the present value of the debt. This table is currently left vacant by Greece,” he says. Overall, “the Eurostat database showed the actual figures of the Greek public debt from 2009 to 2011. In 2011, Eurostat recorded the Greek debt at 205 billion euros in terms of present value, 151 billion euros lower than its future nominal value. As a percentage, it was 99 percent rather than 172 percent of GDP. The current figures have not yet incorporated the present value of restructured debt – an adjustment provided for by the section [Paragraph] 20.236 of the ESA Regulation 2010. We hope that this will change soon.”
According to Kazarian, “Greek net debt is 58 percent of GDP, when it is correctly calculated under ESA 2010. The issue, which we have raised internationally, is why do they continue to focus on meaningless and economically suffocating future face value numbers.”
Solidarity and arithmetic
Following the meeting of the leaders of Southern Europe in Athens last week, Kazarian provided a series of numbers that underscore how much lighter the Greek debt servicing cost has become due to the restructurings of 2012. “These countries [which took part in the meeting of the Southern European countries] have granted Greece loans under favorable terms amounting to 128 billion euros, with a cost for their taxpayers of up to 8 billion euros per year. Between the years 2016 and 2020, Greece will save 10 billion euros from reduced interest costs compared to other countries of the south. The debt burden of Greece is half of that of several other countries within the EU, whichever way you look at it.”
Kazarian stresses the importance of preparing a government balance sheet in accordance with international standards as a catalyst for restoring confidence. He describes this issue as “the top priority.” It is indicative that while he was invited to discuss other critical issues that require reforms, he insisted only on this one.
“A proper balance sheet will show that the assets and liabilities of Greece reach half a trillion euros, equivalent to 48,060 euros for each citizen,” he says. Its publication will allow the better management of capital expenditures and assets, as well as “help to recover the estimated 69 billion euros – 625 million euros per week – of cumulative Greek government asset value lost since 2014.”
Skeptics insist that Japonica overestimates the debt reduction resulting from the calculation of state assets. Others emphasize that the deep structural problems behind the loss of trust are not simply solved with the publication of a balance sheet. Kazarian is determined to continue his campaign – until a final victory or a respectable resolution.