Eideard

Greece is at the heart of the ongoing eurozone crisis, but is past sleight of hand by Greek statisticians to blame for the country’s current financial meltdown?

“We used to call him the magician, because he could make everything disappear. “He made inflation disappear. And then he made the deficit disappear,” recalls Greek economist Miranda Xafa…

The new fiscal treaty that 25 of the 27 EU member states agreed to…is meant to ensure that in future no country has a budget deficit of greater than 3% of GDP.

That same 3% rule was first enshrined in 1992, in the Maastricht Treaty, which led to the creation of the euro in the first place. But some countries did not respect it. In the case of Greece, not even from the beginning. Greece cooked the books to join the euro in the first place.

“Take the Greek state railway. It was losing a billion euros a year,” Ms Xafa remembers. “The Greek railway had more employees than passengers. A former minister, Stefanos Manos, had said publicly at the time that it would be cheaper to send everyone by taxi…”

“The [railway] company would issue shares that the government would buy. So it was counted not as expenditure, but as a financial transaction.” And it did not appear on the budget balance sheet.

So Greece fulfilled the Maastricht criteria and was admitted to the eurozone on January 1, 2001 – but by 2004 the deception was becoming transparent.”

That year a new, centre-right government was elected. Peter Doukas was appointed budget minister. “I invited the senior staff of the ministry and asked them to give me details of the budget that had been passed the previous December, two-and-a-half months before we took office…

The difference between the published deficit and the real one was huge…The budget said the deficit was 1.5%. The real shortfall was 8.3%.”

So what did Mr Doukas do about it, given the eurozone’s Maastricht treaty rule to keep budget deficits below 3% of GDP…?

“But the answer I got at the time was ‘listen, we are having the Olympic Games in a few months and we cannot upset the whole population and start having strikes and everything just before the Olympic Games’.”

Instead of reforming public finances, Greece borrowed and borrowed to meet the deficit. Banks queued up to lend. The markets did not believe there was a risk of default because Greece’s currency, the euro, was locked into that of Germany…

Suddenly, in this one very narrow respect, every country was Germany…The markets failed to see the debt mountains that were accumulating. And they underestimated the risk…

In fact the Stability and Growth Pact was as good as dead by the time Mr Doukas took office in 2004.

The big nations of the EU, the predominant economic forces of France and Germany were as willing as the little guys to bend the laws, stifle the accounting, because it made the overall books look bigger. The whole of Europe was becoming one big happy family and just one bank, the European Central Bank, was needed to keep track of everything. Even if the rules weren’t lived up to in the first place.

And all the work that’s been put into turning around the train wreck that was the Great Recession started by our local crooks in the United States still can be undone by another recession spinning out of control from Greece and Europe — courtesy of a magician who made the cost of running the Greek train wreck disappear into economic limbo.

A former Greek policeman who invented 19 fictional offspring to claim benefits for what would have been the largest family in Greece has been arrested for benefit fraud…

The former police officer, divorced and with no children of his own, quit his 1,000-euro-a-month job in 2001 and has been living solely on benefits ever since, police said on Thursday. Using photographs of children he found online, the 54-year-old man forged birth certificates and other documents needed to claim benefits for at least one child a year since 1996.

Police estimate he made at least 150,000 euros in claims over 15 years, but the actual amount is probably much higher.

The fraud was so expert, police said, that they only realized something was amiss when they noticed his was the only Greek family with that many children. The average Greek family usually has two or three children.

Truly sharp coppers, eh?

“We have never seen a scam like this before,” said a police official who declined to be named…

The former policeman, who under Greek law cannot be named, was arrested Wednesday as he was about to collect 8,000 euros in benefits from an Athens branch of Greece’s employment agency OAED. He was taken to the prosecutor’s office Thursday.

Widespread fraud, a generous welfare state and a notoriously inefficient public sector have been blamed as root causes of Greece’s financial trouble that threatens to break apart the euro zone.

Relying on coppers who commit fraud themselves might be part of that equation, as well.

I don’t know about the rest of you – I’m going shopping
Daylife/Getty Images used by permission

German Chancellor Angela Merkel has said that EU treaty changes rather than eurobonds will help solve the eurozone debt crisis.

Ahead of European Commission proposals for bonds backed by all 17 eurozone states, she said what was really needed was a political response. Mrs Merkel argued if there was to be a debate on eurobonds, it should be at the end, not the middle of the crisis…

The eurobond plans, due to be presented by the commission on Wednesday, are attracting increasing support, despite Germany’s opposition. Greece’s new Prime Minister, Lucas Papademos, said on Tuesday that eurobonds “or similar tools could provide the means to overcome the crisis”.

Addressing Germany’s confederation of employers in Berlin on Tuesday, the German chancellor said that if changing treaties proved too difficult on an EU level, they would be dealt with instead by the 17 members of the eurozone.

“We have to change the construction of the euro area,” she said. “Treaty changes are for me an immediate part of solving the crisis, the political response to a politically derived confidence crisis.”

Reports on Monday suggested that Britain would accept a “narrow” amendment of the EU’s Lisbon Treaty covering the eurozone in return for a deal on the EU’s working time directive.

Although full details of the commission’s proposals are not yet known, a leaked draft document indicates they would involve three options

An extensive scheme that would completely replace national bonds and would require each eurozone government to guarantee the debt of other countries

A lesser scheme that would see national bonds partially replaced with eurobonds up to a limit that could relate to how closely a country adhered to strict rules.

The replacement of some national bond issues with a limit on guarantees

Flip-flopping hardly describes the way this crisis is going down to the wire. And maybe beyond.

Now, the lies accepted to justify sleazy economic practices is haunting the politicians who hoped to benefit. Except an increase in risk supersedes an increase in power. It’s looks more likely to me they will have to shrink the European Union back to the nations which can deal responsibly with each other on debt and currency. That’s a single-digit number.

Leave it up to Fibber McGee and Molly
Daylife/AP Photo used by permission

President Hu Jintao of China will arrive in Cannes, France, this week pondering a plea from Europe for tens of billions of dollars to help the continent get out of its debt crisis. And President Obama will arrive with a smile, some hearty handshakes, and his own plea: that Greece get its act together and that Europe fix its economic ills, which he has called one of the biggest drags on the United States’ own ailing economy…

The last few months may well end up being an inflection point, in which the United States, though easily still the world’s leading power, no longer has quite the responsibility or the burden it once did. The pattern has been evident in the Arab Spring, with the American military playing mostly a supporting role in Libya, and now in the European financial crisis, with Asian money coming to aid the Europeans…A significant difference in policy between Obama and traditional Cold Warriors in both of the TweedleDeeDum parties.

In many ways, the situation is a natural evolution of the campaign promises made by Mr. Obama in 2008, when he vowed to turn away from the Bush administration’s more unilateral approach.

As president, Mr. Obama is now overseeing the withdrawal of all troops from Iraq and has emphasized multilateral diplomacy in all its messy forms. He refused to consider American intervention in Libya until the United Nations approved a resolution supporting it, and then he stepped back and allowed France and Britain to take the lead though American military help remained essential…We only have about 174 countries to go to withdraw from the rest of our foreign military bases.

Mr. Obama’s backers say that he is simply acknowledging reality and developing a clear-eyed strategy for what the United States can and cannot do and that he ultimately may prove right in diagnosing Europe’s economic problems and its need to take difficult steps to fix them…

Arriving in Cannes on Thursday, Mr. Obama will be trying to balance providing that leadership while not taking on any of the additional burden — particularly financial — that such leadership often requires…

But for all the acceptance that the United States will no longer be the world’s policeman and financier, the emerging strategy carries risks…

The American military remains the world’s most formidable, and the most likely to be called on to back American allies like Israel, Japan and South Korea.

Of course, no one expects South Korea or Japan to invade one of their neighbors – and start a war.

Does Europe have too many people paid as political and financial journalists?

Journalists in the main media hall at the European Union summit in Brussels, October 27, 2011.

There are plenty of times everyone feels the European Parliament is roughly akin to a Roman circus. They’re not feeding xhristians to lions or staging phony sea battles in their shiny coliseum – but, the attention paid to the smoke and mirrors that passes for planning, that imitates serious well-thought-out legislation, is as much of a joke as the content of that legislation itself.

Peering in at row after row of people paid to report on these events as a serious record of history somehow reminds me of the scribes covering Roman holidays before the obligatory crucifixions.

I’ll meet you at the Maginot Line

German Chancellor Angela Merkel will thrash out differences with French President Nicolas Sarkozy Sunday over how to use the euro zone’s financial firepower to counter a sovereign debt crisis threatening the global economy.

With the turmoil threatening to spiral into financial meltdown as the value of banks’ sovereign bond holdings slide, Merkel and Sarkozy are likely to discuss in Berlin both how to manage Greece, prevent contagion and strengthen lenders.

The implosion of Belgian lender Dexia, the first victim of the crisis, has added a sense of urgency to the talks…

Germany and France have so far been split over how to recapitalise Europe’s banks, which Ireland estimated Saturday may need more than 100 billion euros to withstand the sovereign debt crisis, while the International Monetary Fund (IMF) has said the banks need 200 billion in additional funds.

Paris wants to tap the euro zone’s 440 billion European Financial Stability Facility (EFSF) to recapitalise its own banks, while Berlin is insisting the fund should be used as a last resort…

The two euro zone heavyweights have come under pressure worldwide to resolve Europe’s crisis which is roiling markets. U.S. President Barack Obama Thursday urged Europe to “act fast,” calling the common currency bloc’s crisis the largest obstacle to the United States’ own recovery.

World Bank President Robert Zoellick told Wirtschaftswoche magazine there was a “total lack” of vision in Europe and Germany in particular needed to show more leadership.

Assign the cost of “leadership” to the nations who showed the same quality when they allowed the Lehman Brothers-style accounting that brought Greece into the EU in the first place. It would be like turning the bill for the US wars in the Middle East over to the states whose congress-critters voted for them. Or handing the tab for the stimulus programs to the politicians who voted to ease oversight and regulation on mortgage banks and financial traders “because the trickle-down” would create jobs.

Yeah, I know. Ain’t likely any of these happen, right?

Greece would be in much better shape now if it had never joined the euro zone, or if it had been kicked out in 2004 when it admitted that it had lied about its finances to join the club. So would the rest of Europe.

So why not get out now?

One answer is the same one that was given when Greece’s cheating was revealed: Legally, there is no way out. The euro was designed to be the Roach Motel of currencies. Once you enter, you can never leave. There is no provision for departure.

The sophistry in this article is that the lies, the cheating, was “revealed”. Hogwash. Everyone knew what was going on. Including the Greek politicians who stood in line to gobble up the Euro dole.

But, of course, there is a way out. It would be messy, and perhaps disastrous. But no one is going to send an army to Athens to force it to keep the euro.

If Greece were to follow the example set by Argentina nearly a decade ago, it would simply convert its debts from euros into its old currency, the drachma, at the old exchange rate of 340.75 drachmas to one euro. It could also convert euro currency in the country at the same rate. So if you owned one million euros in Greek bonds, they would be converted to bonds with a face value of 340.75 million drachmas.

With a printing press available, Greece could meet those obligations. Of course the drachma would soon be worth a lot less — perhaps 1,000 to the euro. So bondholders would have lost two-thirds of face value…Greece would suddenly be forced to run a balanced budget, or to borrow from its own citizens, whose savings would have lost much, if not most, of their value.

For Greece to pull that off, it would probably have to do it over a weekend, without leaks of what it was planning. If people got wind of what might be coming, there would be an immediate run on Greek banks…

Think there are any Euro politicians who could keep that kind of secret?

…Greece remains woefully uncompetitive in export markets, and there is no credible plan to get its economy growing. The rest of Europe uses the threat of cutting off funds to force more and more austerity on the Greek government.

The message from Greece now may be summarized as, “I’m small. I’ve suffered. You can afford to rescue me. If you don’t, I can create chaos for all of you.”

Part of the earlier spring agreement Greece agreed to included – eventually – a replacement rate of 1 for 10 as civil servants retired. Some of the hacks on board before the government began the hiring tsunami that followed EU membership. Well, 18-20,000 retired who should have been replaced by 2,000 tops. The government hired 24,000.

There he is, yelping with delight as the youths start hurling chunks of paving stones, barking his admonition at a cordon of cops fending off petrol bombs, sneezing as he scampers through the tear gas.

Meet Sausage the riot dog, an amiable ginger mongrel resident of Syntagma Square in central Athens, who doesn’t mind if you show up for a day of mayhem as long as he can join in.

Whenever there’s a demonstration, Sausage is there, always taking the side of the protesters and cheerfully lending a sense of comic relief to the occasionally violent proceedings…

On Wednesday when state workers marched against government cuts, Sausage was in his usual spot at the front, egging on the crowd with a hearty “Gav!” (Greek for “Woof!”), tripping up baton-wielding officers as they charged down the steps…

…Some people call him Kanellos — Cinnamon. The Athens municipality, which has known him since 2006 as Dog Number 1842, prefers Loukanikos — Sausage…

As head of the department, Makri was sued once because Sausage bit someone. The case is pending. “He’s a loveable dog, but he’s a little bit hot-blooded,” she says.

Stray dogs in Athens don’t look like stray dogs in other big cities. Many, Sausage included, wear collars and tags.

Instead of rounding them up and destroying them, the municipal authorities of Athens pay to feed more than 2,000 of them. They are neutered, given vaccines, identified with microchips and released back onto the street, wearing a tag with a phone number to call if they are in — or causing — trouble…

“In most European countries, they solve this problem with euthanasia. But Greek culture is against that. Our law is about rehabilitating the dogs,” said Makri. “People here take care of them and love them. They are like everyone’s dog.”

Bravo!

Part of the truism that more dogs probably care for people than vice-versa. A symptom of how far our civilization still has to improve.

France and Germany may effectively run the European Union, but Finland has been demonstrating how even a small country can disrupt their grand designs.

By insisting that it receive collateral from Greece in return for aid, Finland is threatening to upend an agreement that euro zone countries, led by France and Germany, made in July to expand the E.U. bailout fund.

Finland would contribute less than 2 percent of the guarantees provided to the fund, known as the European Financial Stability Facility. But the country’s demands, the subject of intense negotiations in recent days, threaten to derail the fragile consensus that is preventing Greece from defaulting on its debt.

Finland is the most vivid example of the way domestic politics can become Continental problems, threatening the unity of the 17 euro zone members as they face their deepest crisis ever. But Germany, the Netherlands and Austria — all wealthy countries with strong economies — also harbor deep opposition to bailing out Greece, Portugal, Ireland or any other country that may become overwhelmed by debt…

In Finland, Prime Minister Jyrki Katainen faces discontent within his governing coalition as well as pressure from a nationalist opposition group, the True Finns, which rode euro-skepticism to big gains in April parliamentary elections…

Finnish officials say they want to resolve the collateral issue and contribute to the bailout fund. But they are also adamant that the country must receive guarantees.

“We have to listen to the people of Finland,” said a government official, who requested anonymity because of the sensitivity of the issue. “Collateral is an absolute condition for Finland to be involved.”

It is unclear what the collateral might consist of — jokes making the rounds suggest that Greece could pawn the Acropolis or the island of Corfu. And any concessions made to Finland would probably then be demanded by other countries like Austria, where citizens are also grumpy about having to provide tax dollars to support Greece…

They may be jokes to NYTimes writers; but, that was exactly the same response from my favorite banker when we got into a discussion of exactly these fiscal issues — the European Union not being a fiscal union.

Confederacies still haven’t anymore viable economic solutions than they have political solutions. A simple agreement for commerce and currency doesn’t guarantee sound monetary policy for seventeen different economies.

Who holds the keys to the Treasury?

The Greek Orthodox Church owns more land than anyone except the state, employs thousands on the public payroll, has a stake in the nation’s biggest bank, but campaigners say its tax payments are derisory.

The Church vehemently denies accusations it is one of Greece’s biggest tax dodgers and says it is playing a vital social, economic and spiritual role in this time of hardship…

The Greek Orthodox Church has long enjoyed a privileged, some would say cozy, status when it comes to taxes in a country where it is responsible for the sole official religion, with one critic calling its complex finances at best opaque.

But the sovereign debt crisis that has rocked the Greek state, thrown hundreds of thousands of people out of work, and forced painful cuts in salaries, pensions and benefits, has raised fresh questions about the Church’s tax position.

More than 100,000 people have joined a Greek Facebook page “Tax The Church,” and 29,000 have so far signed an online petition urging the state to harness “the huge fortune of churches” to reduce Greece’s crushing budget deficit.

“The Church must pay its share of the tax burden,” said former finance minister Yannos Papantoniou. “It is totally unreasonable in this situation that they contribute so little…”

Church finances, lands and other concerns are so labyrinthine they are hard to penetrate, analysts said. The Church’s total tax payment is not made public, and Father Timotheos said churches are responsible for their own taxes…

The state at the moment pays the salaries of about 9,000 black-robed priests, including about 100 metropolitans who run the Church, as well as the pensions of retired clergy…

“It’s the third rail of Greek politics. If you touch it, you die,” the adviser to Papandreou said, comparing the issue to the high voltage electrified rail on some train tracks.

RTFA. Detailed in what history it presents. The Orthodox Church executives have always been smart enough to behave like a modern-day mafia. Keep up sufficient charitable works to maintain public political indebtedness.

Given the corruption of Greece’s political institutions, nepotism, cronyism – which is more public than identical DNA in the Orthodox Church – it hasn’t been especially difficult to appear as a force at least as capable as the government at providing assistance. Although the sum of taxes which never makes it to good works is certainly greater than a single delivery system would ever require.