Europe's Original Sin

Europeans blame the financial transactions on Wall Street that they have encouraged Greece to a situation where it must be saved. However, a closer look at the finances of this country over the past 10 years from the date of entry into the euro area suggests that not only is Greece itself was guilty of their debts, and that the associates in other European countries have repeatedly turned a blind eye to disregard the rules.

Although the European Commission and the U.S. Federal Reserve explore swap agreements in 2001 with Goldman Sachs Group Inc., Greece's own budgetary measures clearly violate EU rules, dwarfing the impact of such transactions.
Difficulties faced by Greece are the result of cost overruns, in which investors have become concerned about the ability to pay its debts, although, of course, this turn of events did not expect the euro area. Even in the early steps of a pact aimed at preventing the uncontrolled government spending in order to prevent the erosion of a common currency. Pact should be adopted countries joining the euro, in order to limit annual budget deficits to 3% of GDP and total public sector debt to 60% of GDP.
Review Commission, the EU budget report shows that Greece will never follow the rules of the budget deficit with the exception of 2006, and never approached less than 30% of the debt ceiling.
Greece revised its figures for the deficit, significantly raising them up for every year since 1997. Several times the final figures were increased by 4 times, as stated before. Late last year the Greek government gave the course of the current crisis, increasing the 2009 estimate of the budget deficit, initially from 3.7% of GDP, almost 13% of GDP.
These changes far exceed the impact of controversial derivatives transactions Greece, which she uses in order to mask the size of its debt and deficit data. Deal in 2001 on currency swaps with Goldman cut the deficit Greece by about 10% of GDP in that year. By contrast, Greece had not recorded € 1.6 billion euros ($ 2.2 billion) in military spending in 2001 - 10 times more than helped save the swap, under the Eurostat data, the official statistical organizations in the EU.
Greek problem showed that European financial institutions do not have enough grasp of or experience in order to rein in the ranks of renegade members of the eurozone - said Jean-Pierre Zhyuve (Jean-Pierre Jouyet), head of the supervisory body for the French stock exchange and a former chief of staff of the European Commission, Jacques Delors (Jacques Delors). "We need new tools for managing these imbalances, as the pact without the sanction itself is not enough" - said Zhyuve.
Papadopolous Constantine (Constantine Papadopoulos), Secretary General for International Economic Affairs at the Greek foreign ministry said that the country joined the euro area legally. "The notion that Greece had" fraudulently "joined by the euro, is one of those words that stuck in people's minds in Europe, and, as this well-conceived piece of propaganda will be difficult to change such a perception.
Papadopulus, a member of the current ruling party, the Socialists, said that most changes occurred because the coming to power in 2004, New Democrats retrospective method revised military spending. This, he said, had an impact on the budget deficit attributed to the Socialists over the past few years. However, Eurostat considers that these changes were necessary because the military spending Greece were "grossly underestimated".
Aegean country was not alone in violating the rules of the euro area: the majority of other member countries have also failed to comply with the requirements for the debts and deficits, at least one day a few years - the report says.
The euro was launched by 11 founding members in 1999, Greece joined 18-th months later, included in a deliberate political move of European political leaders: membership in the fledgling currency was to be as much as possible. Italy and Belgium were allowed in the first group, despite significantly higher than the threshold of debt, which caused some controversy.
The entry of Greece, the ancient "cradle of democracy" was symbolically important. In any case, by the end of the 90's, Greece was attributed to the great economic story that has caused some wonder.
The current crisis in Greece, which has weakened the euro and has raised doubts about the level of debt of some European countries, showed that Europe's political ambitions, aiming at expanding the euro, faced with economic realities. The crisis also raises the issue that the Greek economic success could be partly a mirage created by properly constituted, with the help of economic statistics.
This is a consequence of weakness, which, as the economists and historians, was immediately with the birth of a common currency, and the lack of a coherent fiscal policy does not move the currency union. Since the beginning of the euro shows tension, - says David Marsh (David Marsh), author of "The Euro" (2009), chronicles the birth rate. Monetary union is seen by some politicians as a way to bring the EU to a political union, while others, mostly Germans, emphasized the need for fiscal and monetary transparency.
When a country is in a monetary union, little could be done to other wayward members, as well as architects euro did not give real opportunities for such assistance.

Partly because of the compromise reached in 1996 at the European summit in Dublin, where it was decided to impose fines on astray States parties to the joint decision by the participating countries. It was a victory of Jacques Chirac (Jacques Chirac), in those days the president of France, over German Chancellor Helmut Kohl (Helmut Kohl), who wanted to adopt the automatic fines. Since that decision, no country has been fined.
William Bitter (Willem Buiter), chief economist at Citigroup and a former member of the Monetary Policy Committee Bank of England, described the 1996 agreement aimed at providing debt and deficit rules as a "paper tiger".
"The agreement was ineffective because some time after its creation, it created the illusion that there are a carrot and stick that can change the financial behavior of states, so in reality and is not used," - he wrote a new study.
Careless attitude to the financial rules started too early. In an effort to launch the euro in the late 90's, European leaders have decided that 1997 will be the key. If everyone could achieve in that year, the euro could be run.
60% debt reduction goals were simply not feasible. Belgium, for example, wrote off the debt, equivalent to 131% of GDP in 1995. The countries agreed that the debt is considered acceptable until it is reduced (the euro zone, in general, has never faced with excess of 60% debt limit).
Instead, Europe is trying to keep the annual deficit. This led to a year in disposable take-offs the public treasury. Countries to sell a wide range of licenses for mobile phones. France received a payment of over € 5 billion against future projected benefit obligation, which were soon to be privatized by France Télécom. Germany tried to re-evaluate their reserves of gold, but to no avail.
Inspired by these maneuvers with tehnobumom, 11 out of 12 countries achieved the target of 3%, set in 1997. With grand fanfare, the euro was born, when the clock moved from 1998 in 1999, although banknotes and coins are not functioning yet 3 years.
With much less pomp, the country later revised their data: the 11 original participants who were selected on the basis of 1997, Spain, France and Portugal, later revised their data, indicating the deficit above 3%. Revision of the French budget to 3.3% was not made until 2007.
Greece was not the first wave. Its deficit of 4%, was severely undervalued. Even if technocrats doubted the Greek statistics. In late 1999, to keep afloat in the eurozone, the EU has ignored these problems. Data for 1998 were better and European governments agreed that Greece had achieved fiscal targets.

Germany's Chancellor Helmut Kohl and French President Chirac Shuck at a summit in Dublin in 1996

They noted the reduction of the deficit to 2.5% of GDP in 1998 and forecast at 1.9% in 1999, after welcoming the measures Greece to reduce debt. "The deficit was lower than specified in the agreement reached in 1998 and was expected to remain so in 1999 with the prospect of further reductions in the short term", said the government in December 1999.
All this was not true. In March 2000, Eurostat said that the new accounting standard raised the Greek deficit in 1998 to 3.2%. Later, in a report in 2004, Eurostat added about € 2 billion to the original amount of the deficit, mainly due to an incorrect calculation of Greece grants to public entities for the purchase of shares of the same scheme in the future and took advantage of Portugal. Eventually, in 1998 the deficit was already at around 4.3%, which was much higher than the criterion for eurozone.

Greek Prime Minister Costas Simitis in June 2000 raises his glass to the adoption of Greece in Euro

Next - worse. Eurostat found that Greece had only just recorded the expenditure on military equipment over the years, consistently over-estimated from the taxes, do not take into account the cost of hospitalization in the health system and take into account the EU grants to individuals, as government revenues.
In a recession, other countries have joined to Greece. France and Germany breached the deficit limit in 2002, 2003 and 2004, to show others that even the economic locomotive is not bound by the rules. In 2003, Italy and the Netherlands joined the list. "When Germany and France have had difficulties, a strong response from the EU was not" - said Jean-Luc Dehaene (Jean-Luc Dehaene), former Belgian Prime Minister. Financial ministers think about the answer, and they were inclined to take a political decision "- he said.
Of the first 12 members of the eurozone all except Belgium, Luxembourg and Finland have crossed the budgetary rules at least once. Finally, under political pressure, the rules were relaxed in 2005 in order to allow overstep the limits during the financial downturn.
This happened after the tragic-comic stories of the Greek deficit in 2003. In March 2004, Greece reported that its deficit in 2003 reached € 2.6 billion, or 1.7% of GDP. Eurostat called the data "preliminary", but they were still much lower than the average for the euro area (2.7%).

Fireworks in Frankfurt after the launch of European notes and coins on Jan. 1, 2002

Holiday in Greece was short-lived. Two months later, under pressure from Eurostat, Greece has published new data. The deficit in 2003 was 3.2%, partly because of inflated tax revenues and subsidies of the EU. After 4 months after that, the deficit stood at 4.6%: Greece is not included in the report, some military expenses, overstated the excess social security, and lower the interest costs. New data in March 2005 showed that the deficit is equal to 5.2%. Later that year he became 5.7%. Data 18 months earlier about the deficit € 2.6 billion were € 8.8 billion.
In short, says Vassillis Monastriotis (Vassilis Monastiriotis) of the Economic School in London, Greece has failed to grasp the logic of the euro zone, which is fiscal discipline. "


Appendix: Greek crisis


October 20, 2009 - a new government takes office and announces saving plan designed to rebuild confidence in the country, and begin to reduce the budget deficit by 2012. Finance Minister George Papaconstantinou said that the budget deficit will amount to 12,5% of GDP in 2009.

October 22, 2009 - Rating agency Fitch downgraded the rating of Greece to A-from A, after the government revealed the information that the deficit would reach 12.5% in 2009, double the previous forecast.

December 8, 2009 - Fitch lowered the rating of Greece to BBB + with a negative outlook. Fitch said that the decision due to "concerns about the medium-term projections of public finances in a weak confidence in fiscal institutions and political framework in Greece."

December 16, 2009 - S & P lowered the rating of the Greek bonds to BBB from A-.

December 22, 2009 - Moody's lowered the rating of the Greek debt to one notch to A2 c A1. It was better than expected, triggering a rally in equity and debt markets in the country.

January 26, 2010 - Greece is preparing to sell at least 1.5 billion dollars in global debt markets because of weak demand in Europe. Papaconstantinou hopes to receive up to 10 billion dollars from Chinese and Asian investors.

January 28, 2010 - Spread between Greek and German bonds rose to a record 405 points, surpassing the 400 points the first time.

January 29, 2010 - The Minister of Finance of Greece, Papaconstantinou denies the need for bailout Greece EU.

February 2, 2010 - The Greek government has earmarked reduce costs and measures to increase tax revenues to reduce budget deficits to 3% of GDP by 2012 from nearly 13% of GDP in 2009. Some of them included the freezing of pay of civil servants and higher taxes on fuel.

Feb. 3, 2010 - The EU approved the plan.

February 9, 2010 - Germany is discussing a plan with EU partners to offer loan guarantees to reduce the fears of default and prevent the spread of credit fears.

February 11, 2010 - President of the EU Herman Van Rompuy said that European leaders have reached agreement on the aid of Greece and to combat fears spread to other countries in the eurozone.

February 15, 2010 - Other countries eurozone will give Greece a month out to show how it can cope with an unbalanced budget, before continuing to reduce costs and tightening tax burden.

February 23, 2010 - Greek financial instability has spread to the private banks. Fitch lowered its rating of the four largest banks in the country to the BBB, that just two notches above the level of "junk" bonds. Fitch oharakterizirovala forecast for Greece as a "negative".

March 3, 2010 - The Greek government announced its new plan to reduce the deficit, designed to reduce it to 4.8 billion euros. The Government has lowered the salaries of officials and increase sales tax by two percentage points.

The Wall Street Journal