Until October 2009, regardless of the onset of the global economic crisis, Greece’s fiscal problems were managed by the eurozone with the typical mechanisms envisaged by the Stability and Growth Pact. Until then, Greece had kept its public debt under control, despite being one of the highest in Europe, exceeding 100% of GDP.
In 2004, the year of the Olympic Games in Athens, the excessive deficit procedure was opened against Greece, which in the eurozone had already been used for France and Germany. In the Greek case, however, the discovery that, in addition to the fiscal deficit, there was also a problem in the data collection concerning the deficit and the public debt raised concerns and sparked lively debates within the community institutions and in the press, the hypothesis that Greece had used false statistics since its entry into the euro area in 2001.
As regards some of the parameters envisaged by the Maastricht Treaty for this entry (nominal inflation levels, long-term interest rates, exchange rate for at least two years within the normal fluctuation margins provided for by the exchange rate mechanism of the European Monetary System) there was no doubt, nor could there be. The falsification hypothesis, therefore, concerned the two parameters of the deficit and the debt / GDP ratio. In this regard, it must be remembered that during the founding phase of the euro, the question of whether all states would have fully satisfied these two parameters had been widely raised, it being clear that some would have found it especially difficult to comply with the standards set for debt. Because of this, although it was repeated that all the parameters should have been met in a timely and stringent manner, there was a widespread belief that the political principles of unity and solidarity would prevail over rigid economic criteria, so as to make the relative provisions sufficiently elastic. Indeed, despite its rigorous enunciation of financial standards, it is the Treaty itself that allows a flexible interpretation through some of its expressions: with regard to the public deficit it specifies how the ratio with GDP must not exceed the reference value (nominal 3%) a unless it “has decreased substantially and continuously, reaching a level approaching the reference value” or, alternatively, that “the excess with respect to the reference value is only temporary and exceptional and the ratio remains close to the reference value”. Also in relation to debt, the Treaty stipulates that its ratio to GDP should not exceed the reference value (nominal 60%), unless “it is falling sufficiently and approaching the reference value at a satisfactory pace”. The ‘magic’ words of political interpretation correspond to non-quantifiable concepts: substantially, close, temporary, exceptional, sufficient, satisfactory. Without these ‘magic’ words, how other nations, such as Belgium or Italy, would have joined the eurozone? with a debt that exceeded 100% of GDP? It was then assessed how these states had sufficiently reduced their debt and would therefore be able to reach the planned ratio of 60% of GDP at a satisfactory pace. At the request, made by the Athens government in May 1998, to comment on the entry of Greece on the basis of these cases, the Council unanimously decided to adopt the same flexible interpretation of the financial criteria for Greece. Its statement read: ‘The Council notes the substantial progress made by Greece towards achieving the convergence criteria. The decision of the Greek government to continue the financial consolidation and structural reinforcement policies, in order to achieve integration into the third level of Economic and Monetary Union from 1 January 2001, it is more than welcome. On that date the progress of Greece will be judged, in the same way that that of the other states that joined the Union on 1 January 1999 was evaluated ”. Analyzing this decision, it is clear that at that time Greece was more concerned about ‘creative accounting’ and the falsification of data of some of its partners than vice versa. The other states, however, reassured her that when her time came, that is, two years later, they would show the same level of understanding, which in fact they did. The responsibility associated with joining the euro, ultimately of an essentially political nature.
In 2004, the debate on Greece’s falsification of statistical data was short-lived and quite small, consisting of a series of technical recommendations on ways to improve methods of collecting and analyzing statistics. Three years later, in 2007, the EU institutional bodies, noting that Greece had corrected its excessive deficit problems, limited themselves to adopting the usual expressions of solicitation so that the State, like the others, persevered in its efforts to further financial consolidation. Throughout this period, the financial markets did not react to the developments described. They continued to guarantee loans to Greece at very low rates, roughly equivalent to those taken to Germany, as it had happened since its entry into the euro. The same thing happened in April 2009, when, once again, the EU institutions found an excessive deficit in Greek public finances for the year 2008. Greece had recommendations on the need to correct the surplus by 2010, with the specification that the situation would be re-evaluated in October 2009, in order to examine whether the objective had been achieved or whether more stringent measures were required. Even on this occasion, the markets did not react, despite the fact that shortly before October 2009 the statistics and reports of the competent ministries had moved the deficit forecasts to over 6%, in other words double the 3% threshold indicated in the Treaty.. After the national elections, held in October, the new government declared that the deficit would be around 13%, an announcement that caused chain reactions from both EU institutions and eurozone governments, rating agencies and, ultimately, the markets.. The question of the falsification of data relating to public finances at the time of the entry into the euro reappeared and the discussion extended to the problem of the reliability of the modus operandi of the eurozone and, in particular, of the Stability and Growth Pact.
International markets interpreted this picture as indicative of Greece’s inability to guarantee coverage of its massive public debt in the future and neither the approval of the 2010 budget nor the excessive deficit procedure convinced them that adequate and credible effort to rectify the situation. As a result, interest rates for loans to Greece began to rise dramatically. The difference between the Greek government bond yields and the German bond yields, which serve as a yardstick, widened enormously, making the cost of borrowing extremely high. The adoption by the Greek government of a further stability program, although well received by the European Commission, it failed to instill confidence in markets and international rating agencies. In February 2010, the yield on two-year bonds reached the unprecedented difference of 347 basis points and that of ten-year bonds of 270 basis points. Gradually it became more and more evident that Greece would not be able to honor its credit obligations on its own. Bankruptcy scenarios, with their repercussions on the entire eurozone, captured the headlines: the failure of a nation that is part of the eurozone would have represented a unique event in economic history, as much as the establishment of the euro and the market had been. common.
Two further aspects deserve to be underlined in connection with the Greek crisis. First, a significant part of the Greek debt is in the hands of banks and financial institutions of euro area states so that a potential bankruptcy of Greece would damage not only the euro building, but the entire financial and economic system of all. the Member States. Secondly, as these events unfolded, the bond yield differences of other eurozone countries also began to rise. While these nations may not necessarily be accused of irresponsible financial conduct, the data show that their participation in the euro for nearly a decade has coincided with a considerable loss of competitiveness. The international crisis has raised their debt needs significantly, while the diminished level of competitiveness vis-à-vis the economies of the northern European countries has questioned even their ability to service public debt. It therefore appears that the Greek ‘virus’, as this crisis has been called, is threatening other countries as well.