In April 2015, the President of the Parliament of the newly-elected government of Greece set up a Committee on the Truth about the Public Debt. This was composed of Greek and foreign experts, economists lawyers and others, as well as members of grassroots organisations. All members offered their services pro bono. The object of the Committee was to investigate how Greek foreign debt had accumulated from 1980 to 2014.
In June 2008, Greek public debt was about 252 billion Euros, which amounted to a debt to GDP ratio of 112 per cent, which is considered sustainable, especially for a developed economy in the eurozone. If this is coupled with a decent credit rating, particularly where a state pays its monthly debt arrears in time and is considered creditworthy, the interest charged for its borrowing will remain comparatively low. When such creditworthiness exists and a country maintains a small deficit that is counter-balanced by a manageable debt to GDP ratio (i.e. the total amount of public debt as juxtaposed to the GDP), the total amount of a country’s overall debt does not lead to a debt crisis. Hence, if a country has an overall debt of only 1 billion Euros but produces no revenue while incurring annual public expenses of 100 million Euros, its debt to GDP ratio will sky-rocket, lose its creditworthiness and as a result be forced out of the private lending markets (its sovereign bonds will become worthless).
The Falsification of Statistics
For reasons that will become evident below, the Greek Statistical Agency falsified the country’s debt figures in 2009 by discovering additional debt (which did not exist) and which the then government incorporated in the country’s 2009 budget. Hence, whereas the deficit was in fact 9.3 billion Euros, equivalent to 3.93 per cent of GDP, the falsified deficit statistics reported it as being in the region of 24 billion Euros. This automatically created tension in the private markets and effectively made borrowing for Greece much more expensive. As a result, it became unable to repay its otherwise sustainable debt and the value of its sovereign bonds was equally reduced to junk. Before the circulation of the preliminary report of the Greek Parliament’s Truth Committee on Public Debt in June 2015, it was globally assumed that Greece’s debt was the result of lavish public expenditures and living ‘beyond one’s means’. The Committee dispelled this myth and demonstrated how the debt had really been accumulated.