Wednesday 20 September 2017

Lies, damned lies or statistics? How 'truth' about deficit divided Greece

Anti-EU slogans in Athens at the height of the financial crisis. The country remains split about how the economy is faring. Photo: Bloomberg
Anti-EU slogans in Athens at the height of the financial crisis. The country remains split about how the economy is faring. Photo: Bloomberg

Leonid Bershidsky

The continuing legal troubles of Andreas Georgiou, the former head of Elstat, Greece's official statistical agency, show how economic statistics, far from being a boring matter of interest only to geeks, can be an intensely political matter.

Different interpretations of accounting rules can lead to sharply different political decisions, and these, in turn, can affect public trust in the official numbers in unpredictable ways.

Georgiou has been in trouble with Greek prosecutors since 2011, a year after Elstat was formed following a long confrontation between the old Greek statistical agencies and Eurostat, which compiles statistics for the European Union.

Eurostat had produced two damning reports on the quality of Greek statistics, in 2004 and early 2010. Both discussed the Greek government's persistent under-reporting of debt and deficit levels, which had to do both with the low quality of the underlying data and, according to Eurostat, with deliberate misreporting.

Greek statisticians were reluctant to fully account for various indirect government obligations, such as guarantees on state companies' debt, and they tended to be over-optimistic when estimating tax collection levels. Greece was allowed to adopt the euro on the basis of inaccurate statistics.

Georgiou, a former International Monetary Fund employee, was called in to set up a statistical service that could work with the IMF and Greece's EU partners, which had just agreed to participate in the first Greek bailout.

The creditors needed accurate numbers to put forward conditions and monitor progress.

Georgiou went to work; in November, 2010, he revised Greece's 2009 budget deficit to 15.4pc of gross domestic product from 13.6pc.

But he hadn't taken into account the seriousness of his conflict with much of Elstat's seven-member board and with many staff veterans who objected to his attempts to recognise as much economic distress as possible.

In 2011, econometrics professor Zoe Georganta, one of Georgiou's board opponents, accused him of inflating the 2009 deficit number so that the IMF and the EU could issue "unnecessary loans" to Greece and take over its economic governance, imposing austerity on the country.

According to Georganta, who wants Greece to leave the euro area, the idea was "to save the French and German banks by loading debt upon debt on the Greek people".

She claimed that under EU accounting rules, Greece's actual deficit was less than 4pc of GDP and Georgiou shouldn't have incorporated 17 public enterprises into the general government budget.

Eurostat has since repeatedly validated Georgiou's methods and results, and the international statistical community has been on his side, too, even shouldering his legal expenses.

Besides, the 13.6pc number agreed before Georgiou arrived at Elstat was already high enough to justify a bailout. But to Georganta, and to the prosecutors who have followed up on her claims and charged Georgiou with various offences, including working against Greece's interests, that's irrelevant.

If this were just a dispute about accounting methods, it would have died long ago, both in the courts and in public discourse. It would have been enough for authorities in the field, and especially Eurostat, to validate Georgiou's approach.

The case drags on because it's about two conflicting versions of Greece: one that depicts it as a profligate, unfortunate, mismanaged country that is now the EU's ward; the other as a victim of international bankers and their IMF and EU lackeys, which could have escaped their clutches but was betrayed by the likes of Georgiou.

It doesn't matter that not recognising the state entities' debts was not an option, that the international creditors were forced to take a hefty haircut and that the governments of creditor nations faced political revolts over the size of the bailout, which was mainly an effort to save the euro rather than German and French banks.

Many Greeks appear to share Georganta's view, which is more consistent with national pride - and that shows in their attitude to government statistics.

Though both the EU and Elstat's authoritative Good Practice Advisory Committee have lauded the changes in Greece's approach to economic statistics, brought about under Georgiou, a 2015 Eurobarometer survey registered a growing distrust of official statistics in Greece.

In 2009, when Eurostat considered the data supplied by Greece to be inaccurate, a majority trusted the statistics; in 2015, when Eurostat was happy, a majority mistrusted them.

Even today, Greek economic statistics may be inaccurate: Elstat has only 70pc of the staff it employed in 2010, because it has been unable to replace retiring civil servants.

According to the Good Practice Advisory Committee, it doesn't have enough people to meet European standards of reporting and analysis. But that's not why public trust has plummeted: People hate what they see in the statistical mirror.

Eurostat regularly questions the data members share with it; there is plenty of scrutiny and pressure to comply with standards.

But the Greek case shows how easy, and how tempting, it can be for a government that isn't continually challenged in this way to tweak the numbers.

Often, it may want a happier picture, sometimes a more sympathy-inducing one.

Hence the persistent doubts about China's economic data, dissent about the Russian government's numbers, partisan debates about the validity of the methods used in the US to measure unemployment.

Independent validation of government statistics and, ideally, common accounting standards are necessary for a clearer picture of what's going on in the global economy. (Bloomberg View)

Irish Independent

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