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Editor's letter: Tantalized Greece

A lighter burden by accountants' standards

A large number of legendary stories, chronicles and anecdotes from both history and mythology could illustrate Greece's current tragedy. The best one, to draw an analogy which captures Greece's burden after the third bailout, is that of Tantalus.

The English verb, tantalize, comes from this hero's eternal punishment in the Greek underworld or the Tartarus. As the mythological account has it, Tantalus was condemned to stand in a pool, under a fruit tree.

Whenever he was thirsty, the water would recede; and whenever he was hungry, the branch bearing the fruit would be no more at his reach. Similar dynamics can be identified when measuring Greece's debt, but with a third party coming in to rescue Tantalus from his torment.

Official lenders in subsequent bailouts have given Greece the chance to reach the fruit and quench the thirst that Tantalus never had. Among the Good Samaritans are the IMF and European partners, notably Germany and France.

Yet the loans, like a Trojan horse, hid unpleasant surprises for prodigal Greece: austerity measures imposed by what nowadays seems to be the economic orthodoxy. But whether you are a staunch Keynesian or a stalwart supporter of Friedrich Hayek, there is a problem at the very outset: Greece's debt numbers don't add up.

Under accrual-based International Public Sector Accounting Standards (IPSAS), Greece's gross debt is 68% of GDP and not 180% - lower than Germany's 80% (These are 2013 figures of Japonica Partners, one of the largest private holders of Greek bonds).

Defying logic and common sense, Greece's debt is being measured at its face value and not at its fair value. That means the concessionary terms of the bailout (e.g. low interest rates and long-term maturities) are unaccounted for, despite being a sort of debt relief.

So with IPSAS the problem seems to be solved. As if Zeus would have hurled his thunderbolt at Greece's accounting books. Eureka! There is no unsustainable debt anymore.

The problem is that Greece's creditors either play dumb or don't want IPSAS themselves; otherwise any bailout should have been subjected to the condition of using those international standards.

Well, it happens that governments and politicians are not always for transparency. Take Germany for example, Greece's biggest single country creditor. For its federal government, Germany still uses cash accounting.

That spares Angela Merkel of telling taxpayers that the moneys given to the Greeks should have been booked as a loss under IPSAS. But Germans are intelligent people, capable of squaring the circle: the rescue packages given to Greeks banks will also end up servicing their debts with German counterparts.

Don't get me wrong, Greeks are the masters of their own destiny, and should take responsibility for being stuck in the Tartarus. Yet Greek mythologies fall short in explaining this descend to the underworld.

A thorough account of how the debt was formed (and how the psyche of Greek society contributed to it) can be found in Jason Manolopoulos' book: Greece's 'Odious' Debt: The Looting of the Hellenic Republic by the Euro, the Political Elite and the Investment Community.

Another essential book, shedding light on the connection between democracy and accountancy, is Jacob Soll's The Reckoning: Financial Accountability and the Rise and Fall of Nations.

The chapter about the first bailout in history (engineered by Robert Walpole, the first Prime Minister of Great Britain) will help you debunk the many myths contemporary politicians want to perpetuate.

In the meantime, you can read our country survey on Greece, featuring insights from Soll, Manolopoulos, Harvard Business School's George Serafeim, CIPFA's Ian Ball, IPSASB's Paul Mason and Nick Dunbar, the journalist and author who exposed Goldman Sachs and the Greek government's notorious swaps deal.

Find out more here: Debt under IPSAS: Greece's cathartic hope

Carlos Martin Tornero
carlos[dot]tornero[at]uk.timetric.com

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