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Slow-Action Expulsion

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Greece is in an impossible situation. According to Der Spiegel, its real domestic product fell 13 per cent between 2007 and 2011, from 210 to 182 billion euros. Unemployment rose from 8.3 to 17.7 per cent. Public debt increased from 239 to 356 billion euros — that is, from 113 to 195 per cent of GDP. This was after the EU gave 40 billion euros in subsidies, and private creditors wrote off 100 billion euros. Its current account deficit in 2011 was 16 billion euros. If it had to save 30 billion euros towards servicing its debt of 356 billion euros, its gross domestic expenditure would have to fall by 25 per cent. Just imagine your own income falling by a quarter tomorrow; it is not realistic, let alone pleasant.

That is, if the figures are right. When the International Monetary Fund was called in to help Greece in early 2010, it found the official fiscal figures dubious. So it offered Andreas Georgiou, its deputy director of statistics, to the Greek government to put its statistics in order. Georgiou was reluctant to go, partly because he was four months short of 50, when he would qualify for an IMF pension. So IMF promised to keep him on its payrolls for four months after he became the head of Elstat, the new Greek statistical office.

He got down to the job. When the then socialist government presented the budget in 2009, it had projected the deficit at 6 per cent of GDP. At the end of 2009, it announced that the deficit had been 12.4 per cent. Eurostat looked at the figures and placed the deficit at 13.6 per cent. After Georgiou joined, they together reestimated the deficit to have been 15.4 per cent.

This became a sensitive issue, since the cuts in expenditure that the Fund and the European Commission force on the Greek government depend on the deficit — the higher it is, the greater the cuts. So the upward revision made Georgiou enemies. Bitter arguments erupted in Elstat's advisory board. Zoe Georganta, who teaches econometrics in the University of Macedonia, said that Georgiou had raised the deficit by including in it a currency swap of 15 billion euros in 2001 made for National Bank of Greece by Goldman Sachs. She also said that Georgiou had included losses of public enterprises in the fiscal deficit, which she thought was inappropriate. The finance minister got fed up with the bickering, and dismissed the board.

Zoe Georganta then sent her complaint to Grigoris Peponis, who is called financial prosecutor. She was supported by Nikos Logothetis, Georgiou's deputy in Elstat; Georgiou accused him of having hacked his emails. Peponis conducted an enquiry, and sent his report, in which he accused the minister, Georgiou and others of having cooked the figures, to the Supreme Court. Georgiou is now being tried for treason; if convicted, he could be imprisoned for life.

The Greek imbroglio is reminiscent of India in its last payments crisis. In the late 1980s, when the country was entering the crisis, a senior finance ministry official asked heads of public enterprises to go and borrow money from the Japanese to bolster India's foreign exchange reserves. They parked the money in government banks and told them to give high returns. The banks could not find borrowers for the huge amounts. So they called Harshad Mehta, and asked him to invest the money in the stock market. He was extremely successful; he made the banks happy, made pots of money, and set off a stock market boom.

But Harshad Mehta had an enemy in the Reserve Bank, which found out what was going on, and ordered banks to stop lending him money. That led to a stock market crash. Harshad Mehta could not repay the loans; his enemies in the finance ministry stripped him of all his assets and hounded him to death. I do not know how the Greek story will end, but it has all the features of the Indian story I was a part of: divisions, distrust, dishonesty, indecision, intrigue, ill will.

The world press writes of Greece as a single improvident, irresponsible nation. Actually, it is a crore of people, each doing his own thing and together ruining the country. For instance, every rational Greek who can must be transferring his euros to other countries, just in case Greece is expelled from the European Union and reintroduces the drachma. If enough people are rational, there will be a run on Greek banks. As long as Greece is in the European Union, Greek National Bank cannot issue currency and rescue the banks. So it is only a matter of time before Brussels ships another 100 billion euros to Athens — or escorts Greece to the exit.

The author is Consultant Editor of Businessworld.

ashok(dot)desai(at)gmail(dot)com

(This story was published in Businessworld Issue Dated 11-06-2012)