Deficit revision was 'inevitable,' debt agency chief says

The main reason that Greece was blocked from borrowing in 2010 was the constant reassessment of the level of 2009 budget deficit between October of that year and the summer of 2010, the head of the country’s public debt management agency has told a parliamentary inquiry into claims that the 2009 deficit was artificially inflated so that Athens could qualify for a foreign bailout.

The situation was aggravated further by a series of “unfortunate” statements by former Finance Minister Giorgos Papaconstantinou and former premier George Papandreou, said Petros Christodoulou who added however that Greece’s revision of fiscal targets was «inevitable» following pressure exerted by the European Commission’s statistics service, Eurostat, after long delays.

Papaconstantinou’s assertion that efforts to put the economy back on track was like “changing the course of the Titanic” was “unwise,” Christodoulou told the inquiry late Tuesday, adding that Papandreou’s claim that Greece would appeal to the International Monetary Fund if German funding was not secured was “unfortunate for the markets.”

In a written statement issued on Wednesday, Christodoulou said that some members of the inquiry had sought to transform his “honest testimony” into “charges against former Finance Minister Giorgos Papaconstantinou.” The debt management chief stressed that the essence of his testimony related to the shaping of the deficit figure for 2009, noting that “the level of new borrowing every year cannot be significantly larger than the level of the deficit announced regularly, as foreseen by Eurostat rules.” “You cannot cheat the markets,” he said.

The markets knew that the deficit for 2009 would exceed the prediction of 6 percent of gross domestic product made by former Finance Minister Yiannis Papathanassiou as the amount borrowed was bigger than the stated deficit. “Cash never lies,” the debt management chief said. But the sense of the market was that Greece’s deficit had not exceeded 10 percent which explains why Papandreou had few problems securing funding in early 2010. “After the first, then second revision, it was clear we were going to hit a wall,” he said.

“As long as there is good faith, you can negotiate. When good faith is lost, the Europeans want to be twice or even three times as certain about the figures you are producing,” Christodoulou said. “I’m telling you that Greece has been studied more than any other country in the eurozone,” he added.

Christodoulou said he did not believe it was the will of Papaconstantinou and other state officials to revise the deficit figures, noting that Eurostat had been closely monitoring Greece’s debt, the swap agreed with Goldman Sachs and other related aspects. “I don’t know whether the minister at the time had been in a position to avoid it,” Christodoulou told the inquiry, referring to the deficit revision.

But Christodoulou suggested that government officials were not sufficiently informed and not bold enough. “Were they aware of the critical nature of the situation? I don’t think so. Did they want to see the situation even if some people were avoiding telling them about it? I don’t think so.”

Earlier on Tuesday, the former director of the Hellenic Statistical Authority (ELSTAT), Manolis Kontopirakis, told the same inquiry that he did not believe officials had fiddled the figures, noting that official government data in October 2009 suggested that the deficit stood at 14.8 percent of GDP, close to the figure of 15.4 percent sent to Eurostat later that month.

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