WHAT PRICE SALVATION?

To celebrate the blog's 6th birthday (and its 500,000th pageview) I proposed to take suggestions for fact-checks from the audience on Twitter and Facebook. This is the second of the two winning fact-checks and it deals with the cost to Greek citizens of the Greek Orthodox Church. 

In the beginning there was the press release...

Perhaps the most surprising element of this fact-check is the extent to which it has been pre-empted by an extremely detailed press release from Greece's far-left Government (as it then was) in March 2015. This explained that, contrary to press reports, the Greek Churches (for there are three - the Church of Greece, the Church of Crete and the Holy Metropolises of the Dodecanese) pay taxes; enjoy no undue tax breaks, and have a solid legal claim to the Greek government's payroll. They also do not directly handle public money. Quoting from the release:

"The payroll of Christian Orthodox Clergy as well as the funding of Christian Orthodox Religious Education is an obligation of the State declared in texts of the National Assemblies of the Peoples’ representatives of the Greek revolutionaries (1822, 1829) in exchange for transferring the assets of the Church to the State. The transfer was implemented gradually [by means of the following:]

• establishment of public organizations for exploiting the assets of the Church and for supporting public Education and improvement of the Clergy’s situation on October 13, 1834; 
• expropriation of monasteries’ property to indemnify farmers and refugees following the destruction of Ionia on November 19, 1909 and on May 10, 1930; 
• Concession for transferring ⅘ of fields and meadows property of monasteries on September 18, 1952; 
• Concession for transferring forest, fields and meadows property of monasteries on May 11, 1988." 

Moreover, it should be made clear that salaries are paid from the State directly to Clergy. Public funds are not transferred by the State via the Holy Metropolises nor are any regular grants included in the annual budget of the State to any of the entities of the Church of Greece, the Church of Crete and the Holy Metropolises of the Dodecanese. Therefore, the Holy Metropolises do not manage public money”. 

The numbers of the Beast

The Syriza presser, apart from being politically shrewd to defend the Church in an almost entirely Orthodox Christian country, is also right. Technically the payment of priests' salaries is a legal obligation; an off-balance-sheet liability, if you will, recorded as a current transfer by the Central Government to bodies outside General Government. It has also been relatively easy to track down from 2013 onwards. You can find it is as follows:

1. Go to the Greek ministry of finance website and select Menu - Financial Data -  Budget Execution Bulletins (Οικονομικά στοιχεία - Δελτία εκτέλεσης προϋπολογισμού).
2. Pick the latest monthly General government bulletin (Δελτίο εκτέλεσης προϋπολογισμού) and look for the attached Central Government time series .xls file. Sometimes the English files will be missing but the Greek ones will be there.
3. Navigate to the tab named 'Non State Central Government' (Κεντρική Κυβέρνηση Πλην Κρατικού [Προϋπολογισμού])
4. Look for two rows called B.516.: Current transfers paid - Current transfers to non-governmental units (Τρέχουσες μεταβιβάσεις καταβληθείσες - Προς μονάδες εκτός της γενικής κυβέρνησης). One records just the monthly payments and the other records the cumulative figure over the year. Use the cumulative version where possible.
5. Always use the latest version as statistics get revised regularly and retrospectively. 

You can find the most recent time series (Nov 2015) at the time of writing in Greek here and in English here. This approach only works because the Church's wage bill is the only current transfer from central government to a non-General-Government body. If this were to change, it would become much harder to isolate it. Before 2013, the pay data was a little harder to find, and information on the actual number of clerics was elusive; in fact, the Greek Church(es) had to refine their own data collection from 2011 onwards in order to feed into the census of state employees.

Clerics' pensions are, like those of civil servants, unfunded and paid directly out of the Central Government budget. As unlikely as it sounds, this makes the associated payments much more transparent than their salaries - as long as you can read Greek you can look them up in any Budget post-mortem (eg see 'Κεντρικές Υπηρεσίες' here). You can also, for now, find recent data on Diavgeia, the embattled transparency website on which most spending decisions must be published.

I summarise how much the Greek government has paid priests over the recent years in the graph below.

This expenditure includes the salaries of ca. 10,000 priests and other Church staff, while the pensions bill includes pensions paid to a projected 5,240 priests and Church employees. It doesn't include spending on the education of priests and subsidies to other church institutions, which, in 2014, came up to roughly EUR2.5m - but that is genuinely negligible in the grand scheme of things. Now, priests have never been a 'exotic' category of civil servants; legally they've always been treated in the same way as the rest, even collecting the same spurious pre-crisis productivity bonuses as their colleagues elsewhere.

It's clear from the graph above that the Church has not been immune to austerity, having taken a nominal cut of ca 35% between 2010 and 2015. But it has, perhaps, been somewhat sheltered, presumably because so much of its spending is direct transfers to individuals. If you rank the Church against other categories of spending where comparable data is available, the church's wage bill was cut at about two-thirds of the pace seen in the core civil service, defence spending, sickness and disability benefits, public transport or hospital budgets; or at the same pace as parliamentary functions and legal spending; and faster than, say, the police, agricultural spending or environmental protection. Moreover, even more so than with other Greeks, in the priestly orders pensioners really have screwed everyone else over. The Church's pensions bill has come out of the crisis almost entirely unscathed even though the number of pensioners hasn't risen tremendously. And it's clear that it's not just press releases the Syriza/Anel government had to offer the Church; it also offered it its first real-terms payrise in five years.

As much as it's enjoyable to point to the Church's sheltered pensions, it's also important to put the Church's payroll and other spending on it in perspective. At a total EUR224m in 2015, the cost of the Church is approximately 0.13% of GDP; that's somewhere between the country's entire public housing budget and the amount the state spends on waste water management.

God's Social Workers

It is not surprising that there have been calls for a substantial rethink of the Church's relationship to the public finances throughout the last few decades, and even less surprising that they have grown stronger in the recent depression. In 2012, an ungoogleable report from Greece's Centre for Planning and Economic Research (the Greek Government's economic think-tank) called for a rethink, offering several scenarios for the rebalancing of church and state relations - including levying a tax on the faithful or tapping the Church's own income to pay for some 50% of the Church's payroll. This was swiftly dismissed by the Government of the time on the grounds that it would jeopardise the Church's social work, which the Government claimed was worth more than the EUR100m KEPE aimed to save.

But how much charitable work does the Church actually do? Apparently, EUR121m worth in 2014, down marginally from EUR122m in 2013, but up from 106m in 2012, EUR100m in 2011; EUR96m in 2010, EUR92m in 2009 and EUR93m in 2008.  In any case, the Church claims to feed half a million Greeks over the year in 280 soup kitchens, and another 76 thousand through 150 food banks; it claims to provide 1,300 scholarships and care-at-home for 3,500 persons. Not to mention some 28 nurseries and 75 charitable cramming schools (remember those?). This activity is partly supported by over 3,000 parish welfare funds.

So let's try the maths again. I'm netting off charitable work against wages only, as a kind of 'operating surplus' of the Church's social work. Clearly, wage restraint has eaten very far into this surplus; the Church's work is countercyclical, while its wage bill has been cut.

The source of all estimates of the Church's humanitarian work is the Church's Synodical Commission for Social Welfare and Well-Being, supported by a Census of Church organisations. However, unlike the Church's finances these figures are unaudited. Scrutiny by ELSTAT, for which the Church is apparently preparing, is unlikley to fill that gap. So for now, it's important to exercise some skepticism in both directions; these amounts include operating costs of the Church's foundations, and there may be some double-counting in the figures, but also under-counting of donations in kind and voluntary work. I would not query the order of magnitude.

So the Church's argument goes that if it had to pick up the tab for priests' salaries and pensions it would be unable to devote the same amount it currently does to humanitarian work. I am not entirely convinced - or rather, I'm sure this is true but I'm sure the relationship between the Church's wage bill and its ability to provide humanitarian assistance is more nuanced - and weaker. It has, after all, proven capable of raising substantial funds in these lean times despite a cut in its wage bill - something it had warned would be impossible back in 2012. One reason, among many I'm sure, is that the Church's humanitarian activity is not driven substantially by the work of priests and others on the State payroll but by volunteers. The European Values Study of 2008 tells me that 2.2% of the Greek adult population (some 180,000 people) worked unpaid for a religious organisation - eighteen times the number of actual priests. Pensioners and the unemployed, especially those with lower levels of education, were most likely to do this work - so the Church's supply of unpaid labour has no doubt grown in the crisis. (Bonus: if it really takes 180,000 people to provide ca 120m worth of assistance, that works out to ca EUR666 per person per year - a hilarious but genuine coincidence.

Supernatural monopoly

These figures point to the core of Greece's Church-state problem. The Church's network and infrastructure are, frankly, extremely convenient for the State; and the Church has a longer history of performing both social and administrative functions than the State. In providing services to Greece's mainstream, indigenous population, the Church can, due to its historical endowment, out-compete any NGO or international organisation, and often the State itself. The Church can raise the EUR120m or so it needs for its operations less invasively and more sensitively than the State - I've never once heard of a protest against it. And the Church can mobilise volunteers. The State would have a protest on its hands in no time.

Put it differently, if the Greek state were to put the social protection and administrative functions of the Church out to tender, as a formal outsourced business, the Church would win almost all of them right back, with a profit margin. Its mas access to free labour would be almost impossible to replicate. If the State were instead to take them all in-house as state functions, it would probably perform them less effectively and efficiently and would struggle to make the case for tax rises to fund them. It would have to scale down massively because it would never be able to find the people to perform them.

Either extreme is less preferable than the status quo. In the good times, of course, the Church might have struggled to reach the niche or socially excluded groups that were most in need of some interventions (say, sex workers, migrants, or refugees). But as the crisis reaches ever more of the core of Greek society this argument has become weaker.

The Church, of course, didn't build this unassailable competitive position on its own; it has relied on seventeen centuries of Government endorsement of its administrative and welfare functions, not to mention a massive subsidy to its indoctrination work through the establishment of a state religion. These advantages persisted even during the centuries of Ottoman rule. Clearly, a hypothetical country designed from scratch wouldn't work like this - but what is the point of such thinking?

The answer to this supernatural monopoly on welfare services does not, to me, appear to be a defunding of the Church in one fell swoop, but rather a combination of gradually reducing pension spending (say, by fixing it forever in nominal terms) and ending the enormous investment of the State in maintaining the State Religion through education and the law itself. Given how the latter is written into the Greek constitution, I don't expect much change is immediately possible, but it's worthwhile.

Enough land for all the flock to roam

A key question posed to me when I began this fact-check related to the wealth of the Church. The Church, the narrative goes, is rich; and because it is rich it must contribute to the public coffers in our time of need. I am not sure how asset-rich the Church is, or how cash-rich it is either.

The Church's key source of wealth is supposedly land and real estate. But how much land does the Church own? The Greek blogosphere offers a million answers but there some figures with at least some legitimacy. An Agricultural Bank of Greece study (inaccessible online but cited eg here) dating back to 1987 estimates the Church's rural holdings at 1,300 square kilometers, about 1% of the country's rural land. Of this less than a tenth was arable, and about a quarter was classified as forest by the authorities and largely banned from development. A whole lot of it was pastures. But even that study seems to have been compiled based on 'expert views' - on which I would not necessarily rely on such a difficult issue.

The Church cites the 1987 study widely, not only because it makes its real estate empire look small but also because it deals exclusively with rural land; clearly in terms of actual wealth it is the urban property of the Church that actually matters, of which we anecdotally know there is a good deal. The Church's detractors cite the same study because it names the Church as Greece's no.2 landlord after the State itself; even though it is a very distant second. Either way, the reality is that the Church's rural real estate is likely worth very little, and trying to get to the bottom of how much is a fool's errand. Quite how people presume to put a price on land that hasn't been involved in a transaction or put to regular productive use for hundreds of years is beyond me, but I'm not dumb enough to try.

Ultimately, the best way to value a piece of Church land is to buy it, or exploit it commercially. There is a catch, though. The Church claims that it would love to make more of its real estate but red tape (eg planning and preservation laws) is getting in the way; in fact, it claims it is probably the only landowner and/or develop with actual respect for planning, zoning and conservation laws, and finds itself stranded in 'forest' plots that haven't seen a green shoot in years, while all around them the state tolerates irregular development. To British readers, this may sound a little like Green Belt lobbying with a twist. Whatever the truth of it, it worked for a while. In April, the Greek government was reportedly close to a deal for a deregulation drive that would enable a 50/50 joint venture between the Church and the Greek State to develop Church lands (H/T @_LaScapigliata). The deal stalled and, as of November, was getting started all over again, with a joint commission set up. Given that the new commission was meant to discuss a much broader set of issues ahead of a Constitutional review, it seems the Government had not got what it wanted back in the first half of the year and was aiming for more.

The development JV, by the way, wasn't Syriza's idea; it has existed since 2013 and has mostly sat on its hands since. What is the chance that it has a board that has been paid without fail ever since?

Cadastral projection

If you are strict about the meaning of the word own, of course, the answer is that we don't and can't know what the Church owns at all, since Greece still has no Land Registry or cadastre; a reform one might have expected to see fast-tracked in the memorandum years but which was in fact left to wither on the vine with EUR100m of EU funding and a billion of the Greek people's own money committed since 1994 and by turns clawed back by Europe, squandered in Greece, or left on the table by both sides. With three quarters of the work still pending and much of it expected to be completed only after 2020, this is a crime and a national disgrace for which neither the troika institutions nor any Greek Government so far has felt the need to seek justice.

The result? The Church has, since 2011, gone on a cadastral safari, in an effort to ensure its claims are as tidy as possible - which is hard to do when one's claim on land is a patchwork of often centuries old squatter's rights, edicts of fallen imperial thrones, bequests and donations. After several rounds of expropriation in the past (see above and below!), it has good cause to worry. But it could help speed up the process even more by putting its moral and legal weight behind getting the Land Registry off the ground faster. It has not.

Pearls before swine

Regarding the Church's total property, there are estimates of 7-15bn which appear to be based on pre-crisis property and share values, and other estimates of ca. 1bn which may be more reasonable now - that would make the Church about as rich in real estate as Greek pension funds.

But claims that the value of church land in Greece runs into the trillions of Euros also abound on the internet. Like much of the Greek blogosphere, they are nonsense, based on a misreading (mishearing even) of the 1994 case of Holy Monasteries v Greece, in which the ECHR awarded ca 8m Drachmas to monasteries in respect of legal fees and expenses following an irregular expropriation of land by the state.

Eight monasteries did, in fact, make a claim for pecuniary damages amounting to an outrageous GDR 7.6 trillion for expropriated land (EUR22.3bn in today's exchange rate, actually more after accounting for inflation between 1994 and 2001). In fact, however, when the monasteries tallied up their property, it came up to a lot less than that: GRD3.1bn for 7 out of the 8 monasteries and another GRD43bn for the eighth, inflated by its ownership of the marble quaries of mt Parnis. So the typical monastery ended up with an estimate closer to EUR2.7m in current Greek prices (adjusting for inflation since 1994); a substantial amount no doubt, especially considering we have a good 2,500 monasteries. Leaving the outlier aside, and assuming the rest are representative, gives us ca. EUR6.6bn in today's money for monasteries alone. Yet these monasteries were far from representative; they were some of the richest, as evidenced by the fact that they were targeted for expropriation and could afford a ridiculously lengthy court case like this.

Remember, these are the monasteries' own estimates of real-estate values, which is to say they are almost certainly inflated. Crucially, the ECHR took no view on the actual value of the property of the monasteries - a point lost on most of the people blogging about the case. Instead it urged the monasteries and the State to come to a settlement; which they finally did, with the State simply acknowledging the monasteries' ownership over the disputed land.

Of course, monasteries aren't the whole of the Church in Greece; and it is doubtful that the Church 'owns' their property to such effect that it could order monasteries to sell it, rent it out or put it to any other use. Hence the value of these estimates is points. Yet since the one thing both the Church's detractors and its defenders alike agree on is that it is (a very distant) second only to the State as an individual owner of land and real estate, then its urban property cannot in any way be worth more than EUR100bn in current values - since that's what the State's buildings are worth.

But most important of all is the question of why the value of Church property matters. The State reassures us that the Church pays the right amount of property tax. If so, then the discussion of Church property is simply a warm-up act for further expropriation, or an attempt to proxy undeclared income. But as the ECHR confirmed back in the 90s, monasteries and indeed the Church can own property just as well as individuals - and no one can help themselves to it without a competing claim or an over-riding social purpose coupled with compensation. That argument is what did for PASOK's expropriation drive in the early 90s, which incidentially is responsible for many of the enduring myths we are still having to discuss today.

TO BE CONTINUED

STATPORN, STATPIMPS, STAWHORES PART III: EVOLUTION OF THE 2008-9 DEFICIT

This is the third part of my series on the 2008-9 revision of the Greek deficit and the events that led to it; it considers the specific allegations related to the 2008-9 deficit revision. Part 1 of the series is available here, and Part 2 is available here. Part 4 is underway.

The truth is out there

It's hard to overstate just how much of what goes on in the world (even the unsavoury bits) is a matter of record, if not entirely in the public domain. Conspiracy theorists' claims are, as a result, always much more testable than they realise. This is true of Greece's 2008-9 deficit revision.

Here's what you need to make your way through the revisions:

• Eurostat's rules on Government deficit and debt calculation are in the public domain. The ones in place at the time of the 2010 methodological visits are recorded here, while the revised rules of 2012 are available here. The European System of Accounts (ESA95) which was in force at the time is explained in detail here. We've since moved on to ESA2010.
• Eurostat keeps a record of its decisions on how methodological matters should be dealt with, and a record of guidance , visits and advice to member states. 
• All notifications under the Excessive Deficit Procedure (EDP) are available here. The ones most relevant to the 2008-9 deficit review are April 2008, October 2008, April 2009, October 2009 (the first one, of 2/10), April 2010 and October 2010. 
• It's important to remember that the Oct 2009 Notification was fatally flawed; no one accepts it; not Eurostat, not ELSTAT, not the old ESYE, not the conspiracy theorists. No one.
• Eurostat's report on the 2010 revision of Greek deficit statistics is available here with a very helpful annex here. Their report on the 2004 revision is available here. And here  (pp 31 and 32) is the commission's breakdown of the revisions made back in 2004.
• Eurostat has also published reports on their methodological visits to Greece in 2006 (Spring), 2006 (Autumn)  and 2010.
• The 2010 Greek expert report into the reliability of fiscal statistics is available here (in Greek)

Using the EDP notification tables, it is relatively easy to present a history of our 2008 and 2009 deficit forecasts and estimates, by vintage. All timings refer to the EDP notifications in which each estimate was made, but, since EDP notifications don't go back more than four years , I've also added the figures currently cited by Eurostat. For comparability, these are all ESA95 stats.

 

 

As you can see, the flawed Oct 2009 notifications conducted by ESYE, ELSTAT's non-independent predecessor, revised our 2008 and 2009 deficits enormously. Yet, while the Oct 2009 notifications were both severely wrong on many levels, their estimates of the 2008 and 2009 deficits weren't overly high - the figures Eurostat and ELSTAT agree on today, and which I think are methodologically sound, are in both cases significantly worse than what came out of the Oct 2009 notification. This means that, unless one rejects all subsequent revisions, the Oct 2009 notification did not inflate the deficit. Conspiracy theorists can only, perhaps, claim that it drew attention to the deficit at the wrong time. Which is true enough, but not treason.

 

To help you assess the timing of notifications, I've put together a simple timeline, with help from Wikipedia:

• 2 October 2009: The first October 2009 EDP notification is submitted, revising Greece's 2009 deficit forecast from EUR9.3bn (3.7% of GDP) to EUR30.1bn (12.5% of GDP).
• 4 October 2009: PASOK wins the 2009 legislative elections
• 21 October 2009: A second October 2009 EDP notification is submitted.
• 22 October 2009: Fitch downgrades Greece from A to A-
• 8 December 2009: Fitch downgrades Greece from A- to BBB+
• 16 December 2009: S&P downgrades Greece from A- to BBB+
• 22 December 2009: Moody's downgrades Greece from A1 to A2
• 2 January 2010: An expert report into the reliability of Greek fiscal statistics is published
• 8 January 2010: Eurostat publishes its report on Greek fiscal statistics
• 9 March 2010: Greece's new statistical law comes into force, establishing ELSTAT as an independent entity.
• 29-31 March 2010: Eurostat methodological visit.
• 1 April 2010: The April 2010 EDP Notification is submitted, revising Greece's 2009 deficit from EUR30.1bn (12.5% of GDP) to EUR32.3bn (13.6% of GDP).
• 9 April 2010: Fitch downgrades Greece from BBB+ to BBB-
• 21 April 2010: Bailout talks begin
• 22 April 2010: Moody's downgrades Greece from A2 to A3.
• 23 April 2010: Greece formally requests a bailout from the IMF, EU and ECB.
• 27 April 2010: S&P downgrades Greece from A to BB
• 2 May 2010: The first bailout is signed
• 21-22 June: Eurostat methodological visit
• 26 July 2010: Regulation no 697/2010 comes into force, giving Eurostat auditing powers
• 2 August 2010: A. Georgiou takes over as president of ELSTAT.
• 27-29 September 2010: Eurostat methodological visit
• 11 October-9 November 2010: Eurostat methodological visit
• 15 November 2010: Eurostat publishes Greek fiscal data from 2004-2009 without reservations for the first time.

The origins of a revision target - accounting for issuance

As readers know, I do not deal in 'insider' accounts. I am not privy to what went on within ESYE or ELSTAT except through what accounts there are in the public domain. However, I'm willing to bet that, come October 2009, the old ESYE's leadership knew that producing a deficit figure below ca. EUR30bn for 2009 and EUR20bn for 2008 would lose them the last of the international community's remaining goodwill, and I'm willing to bet they were under orders to reach those levels while still allowing their bosses (first ND, then PASOK ministers) to look reasonably good. The reason was simple, and it was not treachery; foreign analysts could see for themselves how much debt Greece was issuing, and it was way out of line with our deficit projections.

It is not impossible to manipulate deficit statistics in order to exaggerate government deficits; however, it is impossible to manipulate the numbers on bond issuance. Bond issues are, after all, probably the most public financial transactions in the world. Eurostat estimates net issuance (all securities issued minus all securities repaid) of EUR23bn in 2008 and EUR38bn in 2009. It would be hard to believe that our deficits (in cash terms, at least) were orders of magnitude smaller than this.

If you're a conspiracy theorist, you may not trust Eurostat on this matter; but bond-watching analysts' estimates at the time might convince you. By Nov 2009, gross issuance for the year was estimated at EUR59bn by Barclays Capital and later at EUR61.3bn by Danske Bank; and since EUR25.9bn of Greek bonds matured or were repaid over the year, that leads us back to a net issuance of EUR35.4bn for 2009. Similarly, as of Dec 2008, gross issuance for the year was estimated at EUR44bn; suggesting net issuance was way ahead of the projected deficit.

It is, of course, possible for a country to net issue more bonds than it needs to, if it is tactically overborrowing to take advantage of low interest rates. But Greece was raising funds in the teeth of literally the biggest bond sale in human history. It was common knowledge that the debt we were raising at the time would cost us dearly. It is also possible, in a conspiracy theorist's mind, for a government to intentionally overborrow in order to bring about a fiscal crisis, but then the bulk of the 2009 issuance was not carried out by the new PASOK government at all. It was carried out by the outgoing ND government which protested the new estimates and started the 2009 deficit myth in the first place!

In any case, it's worth comparing the EUR35.4bn of net bond issuance for 2009 to the conspiracy theorists' own upper-bound estimate for the 2009 deficit: 7.9% of GDP (based on the Oct 2010 notification) before accounting for what they allege was a major GDP underestimate. This produces an utterly impossible net borrowing requirement of EUR18.5bn - these people truly believe the Greek government had issued some EUR17bn worth of bonds just for fun in 2009.

The timing and impact of revisions

Timing is key to the inflated deficit myth: it is, after all, alleged that Greece's 'falsified' deficit figures triggered our debt crisis, hastened the involvement of the IMF in our bailout, or were used to build support for austerity policies domestically. The goalposts keep shifting, so one needs to be careful.

The first EDP notification to significantly review the 2008-9 deficits was the Oct 2009 notification, which came in two parts - the original notification of 2 October, and a follow-up notification on 21 October. Not only was this not prepared by ELSTAT (which did not exist at the time) - the first shocking set of figures was submitted ahead of PASOK winning the 2009 legislative elections. While the timing doesn't tie in well with conspiracy theories, it does tie in with the narrative of the crsis. As you can see here, our October 2009 notification, combined with Dubai's unfolding sovereign debt crisis, was the signal for foreign banks to up sticks and get out of Greek bonds. Greece had put up its hand to ask for a loo break just as investors were wondering who would be the next sovereign to go bust. This is tactically awful, of course, and had I been a PASOK minister I might have tried to stall as long as possible. But the massive deficit and international scrutiny were both already there; a budget would be drawn up in early 2010 no matter what. Greece could not put this off forever.



While foreign banks were individually heading for the exits post October 2009, in other ways the market was slow to catch on. Greece CDS premia were only beginning to diverge from the rest of the periphery in Q4 2009, and it took credit rating agencies, on average, until Q1 2010 to take Greece below investment grade (graph taken from here). Similarly, Google search trends for the Greek deficit only start to really pick up in March 2010. Throughout all of this, the revision of the 2008 deficit hardly made it into the international financial press at all; it was the dramatic revision of the 2009 deficit that was cited most.

STATPORN, STATPIMPS, STATWHORES PART II: THE ROAD TO GREEK STATISTICS

In this second part to my post, I try to explain the factors behind the decline and corruption of Greek statistics leading up to the 2009 deficit revision, and what it can teach us about Greece, Europe, and the State.

Goodhart's Law

Let's start with the basics: Goodhart's Law. It's reason number #45608 why centrally planned economies do not tend to work:

Goodhart’s “law” [...] stipulates that “any observed statistical regularity will tend to collapse once pressure is placed upon it for control purposes” [...] (Koen and Van den Noord 2005)

"when a measure becomes a target, it ceases to be a good measure."
Dame Ann Marilyn Strathern 

Normally, Government deficits are among the most closely monitored government statistics out there, and come with monthly targets; if Goodhart's Law holds, then it makes sense that they should be some of the most prone to manipulation. We don't know how they compare to other statistics but we know they are tampered with, at least in the Eurozone, as a result of political incentives subject to both economic and political cycles, and within the scope allowed by incomplete fiscal transparency. A number of studies demonstrate this conclusively, but I would single out Koen and Van de Noord (2005), Beetsma et al (2011), de Castro et al (2011) or Alt et al (2014) as the most useful. Readers may have others to contribute; all are welcome.

It takes constant vigilance to keep deficit figures relevant and free from interference - in fact, it is a job for institutions of fiscal governance and transparency, not for the occasional do-gooder. You might think Greece's historical record in this has always been poor, but you'd be wrong. As the IMF acknowledges, fiscal transparency was written into Greece's first constitution and elements of it were in place even during the Revolution. This is because the Greek state, born as it was out of war and a concerted Western nation-building effort, was dependent on foreign loans from day minus one. Subsequently, we spent decades under fiscal monitoring and monetary straitjackets of some sort or other (on which, read Tuncer (2009) and Lazaretou (2004)).

The Stability and Growth Pact

But what happens when institutions are as wrong as the people they're supposed to control? In Greece's case, the key institution was the Stability and Growth Pact (SGP) and its infamous 3% deficit target. Pina and Venes (2007) demonstrate that the SGP increased the tendency of governments to flatter their deficit forecasts. Alt at al (2014), moreover, demonstrate that the influence of the SGP reduced headline deficits but increased stock-flow adjustments, and particularly the disguising of deficits as equity injections into state-controlled enterprises. This stock-flow adjustment effect only occurred in countries with low levels of fiscal transparency. Unfortunately for us, Greece's recent record in this regard was poor, whatever our history might have prepared us for.

Differences of degree and of quality

These were in fact Eurozone-wide problems. All studies mentioned so far find the same problems when Greece is removed from the data. So what was special about Greece? For one, there are differences of degree. Tables 4 and 5 here  and Figure 1 here demonstrate that Greece has been an outlier in terms of downward revisions to the deficit figures, ever since 1997, with revisions typically doubling our deficits. The effect of accounting distortions on Greek deficit figures was typically three times the size of the distortions of the next worst-performing country.

As you can see in the graph to the right, the SGP (in effect from 98 onwards) was an effective constraint mostly on Greek governments' planned deficits - these were indeed never above the 3% ceiling. First releases were also subject to SGP; and although these would always revise the planned balances downward (2000 and 2006 were the sole exceptions), the size of the revision was more or less random, or subject to unforeseen circumstances such as the 2004 Olympics running much further over-budget than expected. Such revisions occasionally breached the 3% target. But it was the ex-post reviews, based on methodological visits and Eurostat interventions, that restored Greek deficits to a persistent, downward trajectory. The reason for this is that ex-post deficit figures weren't just about revisions due to random events or
within the bounds of good practice. They were all about gimmicks. Pg 28 here details the full list of accounting gimmicks used in the years leading up to 2005, and it really takes the whole page to go over them.

So what was the hard constraint on our deficits?

If the SGP was not a hard constraint on Greece's true deficits, did politicians see anything as a hard constraint? An OECD review of budgeting in Greece, prepared on the very eve of the crisis and two years ahead of the 2009 deficit revision, is clear on how things worked. Budgeting was a bottom-up, line-by-line as opposed to programme-by-programme process, planning for only one year at a time, leaving almost no role for Parliamentary control and with no provision for ex post oversight. Accounting became increasingly poor as one moved away from central government. Even the OECD had to concede that accrual accounting was not an immediate priority since the state was bad enough at cash accounting. Audit needed to be strengthened. But perhaps most telling is the way the OECD describes the relationship between the SGP targets and the actual budget (see p 14):

"for the medium term (t+2 and t+3), forecasts are done annually for the Stability and Growth Programme that the Greek government must deliver to the EU in the autumn each year. The medium-term forecast is not updated as part of the budget preparation process in the spring. The overall position of the central government finances is updated centrally using the new forecast. One feature of the forecasting process is the overall fiscal targets that the Greek government decides to reach in the medium-term Stability and Growth Programme forecasts. If the fiscal targets (deficit, expenditures, revenues) are not reached according to an updated medium-term forecast, unspecified or partly specified “reforms” are added (such as a reduction in tax evasion or government expenditures), without these reforms being specified in concrete detail. The macroeconomic forecasts are not used in the line ministries’ budget preparations; rather, as discussed below, they develop their own forecasts. This practice naturally hampers the use of the estimates and indeed undermines the integrity of the budget." 

As K. Featherstone, a long-time Greece-watcher argues, SGP compliance did make a difference but of a very different kind: it strengthened the hand of Greek finance ministers against their colleagues, at least in their short term:

The Maastricht convergence criteria and the Stability and Growth Pact set clear policy parameters and created an external discipline for monetary policy in Greece. At home, the government was empowered: the legitimacy of the EU and the precision of the convergence criteria carried a difficult process of adjustment forward. [...] ultimately the strength of the domestic reform initiative would very probably have run aground without the Maastricht constraint. It was telling that, [...] in 2002 [...][t]he Simitis government did not call for a lessening of this external discipline: presumably, it saw advantages in having the corset. It was a means of strengthening its domestic position when pressing for difficult reform.  

I would argue that, in the post-Maastricht era, the ultimate constraint was not the SGP targets, or the government's deficit forecasts. The true targets were the Government's cash targets; these were constrained by a combination of tax revenue and 'safe' borrowing. Notice, in the OECD's 2008 review of Greek budgeting, how much more regular, robust, integrated and closely monitored the cash targets were than the actual budget and the SGP targets.

The process of cash management includes the preparation of the “budget expenditure implementation plan” and of the “cash plan”. Both plans are backed up by the monthly cash limit decision. The “budget expenditure implementation plan” shows monthly forecasts of expenditures. It is prepared for the entire fiscal year, and is updated and rolled over on a monthly basis. The plan is based on the budget appropriations. The monthly forecasts are prepared by using the assumptions underlying the budget preparation and monthly historical data. The “cash plan” puts the “budget expenditure implementation plan” in the context of the revenue forecasts. It is on a pure cash basis and shows daily cash inflows and outflows from the “Single Treasury Account”. [...] The “cash plan” is reviewed and updated every day for the whole month and every month for the whole year. [emphasis mine] The monitoring system includes a continuous flow of data from the Treasury’s departments, the Central Bank, the Fiscal Audit Offices, and the local Tax and Payment Offices. The “cash plan” is a tool for ensuring that there will be adequate cash balances to meet the budget obligations. The forecasts of the cash plan are used for decisions on borrowing and for investing the cash surpluses. The forecasts are elaborated and a ministerial decision is issued, defining a monthly cash limit for every unit involved. Fiscal Audit Offices and Tax and Payment Offices are required to ask for special approval before payments above a certain amount are made (EUR 3 million). The limits are checked against the monthly outcome data and crosschecked against information received on a daily basis by the Central Bank.

The cash constraint was much harder than the SGP's 3% target. But it was soft in another, more insidious way. Tax revenues may have looked steady but they were vulnerable to erosion and the political cycle; market financing was based on a colossal, global mispricing of risk.

We can test some of this insight empirically. A reasonable number of studies have looked into the causal link between tax revenue and government spending in Greece. The question common to all is whether we followed a 'tax and spend' model, whereby government sets its spending target based on what it can raise through taxes, or a 'spend and tax' model, whereby government sets its spending target based on politics and then scrambles to raise the taxes to pay for it. You can see my selection of studies for yourselves below:

• Richter and Paparas (2013):  spend and tax, years 1833-2009 (no typo!)
• Kollias and Makrydakis (2000) bi-directional causality, years 1950 - 1990
• Hondroyiannis and Papapetrou (1996): spend and tax, years 1957-1993
• Konstantinou (2004): tax and spend, years 1970 to 1997
• Trachanas and Katrakilidis (2013): spend and tax, years 1970 to 2010
• Afonso and Rault (2008) spend and tax, years 1960 to 2006, except for 1986 onwards 
• Mutascu (2015) tax and spend, years 1988 to 2014.
• Athanasenas et al (2014) fiscal synchronisation with asymmetric fiscal adjustments, years 1999 to 2010

This is by no means the last word on the matter, but it seems to me that Greece operated a 'spend and tax' model (i.e. government set a spending target first and then adjusted taxes to fund this) for most of our modern history - but  switched to a strange type of cash-and spend policy post-Maastricht, which counted any borrowing we thought we could draw on without inviting undue attention as equivalent to tax revenue. It was the sum of this plus actual tax revenues which led government spending post-Maastricht.

Un-gaming Europe's deficits

People often wonder why, if Greece was only an extreme case of a much wider problem, Eurostat called for changes to European countries' deficit calculations in such a piecemeal manner, review by review, rather than demand that everything be restored to the appropriate level of accuracy at once. Part of the story has to do with the fact that Eurostat's powers and capabilities changed as a result of the Greek crisis - it did not always know what changes needed to be made, nor could it impose changes.

You see, back when our original 2009 deficit figures and the first revised 2009 deficit figures were released, Eurostat did not have auditing powers over national statistics agencies. It only got those in June 2010, because, and I quote, 'in 2005 [when this was originally proposed] several key member states were opposed to a strengthening of Eurostat's powers.'

This new demand for auditing powers for Eurostat came, appropriately, from the European Parliament, and this time, strengthened by the evidence of statistics gone wild in Greece, it managed to get past the Council. Eurostat's September 2010 visit to Greece, which resulted in the final deficit figures which are currently being questioned, was the first time ever that the Directorate made use of its new auditing powers. This resulted in an unprecedented ability to zero in on unreported or misclassified spending and liabilities.

Even in the days leading up to June 2010, the struggle to deny Eurostat its new auditing powers and maintain Governments' 'right' to lie to their citizens was fiercely defended by the Council:

[...] ministers have watered down aspects of the Commission's original proposal. The Commission wanted to require member states to punish their civil servants with “effective, proportionate and dissuasive” sanctions if they deliberately misreported data to Eurostat. Ministers have removed this requirement, because they felt it was an unacceptable infringement of national sovereignty.

The Commission also wanted to place a mandatory obligation on member states to provide Eurostat with “experts in national accounting”. These experts would work with Eurostat on a temporary basis, to help it prepare visits. This was also removed by finance ministers.

The Commission had protested against the changes, but backed down because it did not want to threaten the chance of the legislation being adopted. The Commission also wanted to place a mandatory obligation on member states to provide Eurostat with “experts in national accounting”. These experts would work with Eurostat on a temporary basis, to help it prepare visits. This was also removed by finance ministers. The Commission had protested against the changes, but backed down because it did not want to threaten the chance of the legislation being adopted.

Who were the 'key' member states so opposed to further scrutiny of their accounts? Why only the UK, France and Germany. There is no record of how Greece voted but, by the looks of it, that first bunch of proposals was dead on arrival.

TO BE CONTINUED

STATPORN, STATPIMPS, STATWHORES PART I: ACCUSATIONS

This post has been a long time in the making. I started it a full five years ago and never managed to get it to work. Then longtime LOLGreece favourite Frances Coppola hosted an excellent blog by Sigrún Davídsdóttir about the legal drama following the 2009 Greek deficit revision, and soon afterwards ELSTAT announced the resignation of its President Andreas Georgiou.  Rather than weigh down the comments section at Frances' blog, I decided to come back to the drafts section and finish this monster. Part II of this post is now available here.

What's happening at ELSTAT?

ELSTAT and its president have spent the last five years fighting a persistent allegation - that they had tampered with the 2009 deficit figures in order to cause, hasten or intensify, the onset of austerity in Greece. This is, coincidentally, almost the entire time ELSTAT has been in existence. 

You see, an independent national statistics agency was not on the agenda for Greece prior to October 2009 - Greece's government at the time promised the world such an agency only in the aftermath of the (first) Greek deficit shocker in a vain attempt to rebuild confidence. Much of ELSTAT's eventual form was derived from the recommendations of the Committee for the Reliability of Fiscal Statistics, published in early 2010. The Committee was not billed as fully independent (what ever is, in Greece?); its authors hailed from the BoG, ΚΕΠΕ and ΙΟΒΕ (Greece's most prominent economic think tanks), ΓΣΕΕ (Greece's tertiary trade union), and the Greek banking federation. One, Gikas Hardouvelis, best known for that email, was eventually to become Minister of Finance for the last half-year of the old Coalition government.

The world's statisticians have been pretty much unanimous throughout that the case against ELSTAT is, to quote the International Statistical Institute, 'fanciful.' More than half of all ethics-related interventions by the ISI in recent years have been about Greece (see here, here, and here) and in ELSTAT's favour; and the ISI has had no qualms in publishing its accusers' letters (anonymised) for all to see.

In 2011, Eurostat wrote a public letter in ELSTAT's defence; more tellingly, they haven't questioned our figures for years now. In 2012, the Greek Parliamentary Inquiry into the 2009 deficit found little fault with ELSTAT, noting that it had followed the new European national accounts standard (ESA95) to the letter. A reasonably-independent Good Practices Advisory Committee has twice reviewed the function of ELSTAT in light of these recommendations and general good practice and given it a clean bill of health for 2013 and 2014, in both cases deploring (the previous government's) renewed efforts to tamper with statistics. More recently, between 2014 and 2015, ELSTAT passed a peer review pretty much with flying colours. The European Statistical Governance Advisory Board likewise heaped praise on it earlier this year.

But the 2009 deficit review is not the only matter in which ELSTAT's procedures have been elevated to scandal by conspiracy theorists - not long ago, ELSTAT's own employee Union took issue with a confidentiality attestation that obliged staff to not reveal survey respondents' personal information (clearly and uncontroversially defined in the text) to anyone, including the courts. This was taken out of context and dressed up as a wholesale gagging clause, meant to protect ELSTAT's President from future prosecution. The accusation taken up immediately, not by the usual semi-literate bloggers but, perhaps inevitably, by Greek members of Parliament (G. Dimaras of the Panhellenic Citizens' Chariot and G. Avramidis of the Independent Greeks, the kind of person who feels the need to assure people on Facebook that he has never been a member of a Masonic Lodge). The original culprits, ELSTAT's Union, even took the matter to court , egged on by former Board members involved in championing the deficit tampering myth.

Who buys this stuff?

Sigrún Davídsdóttir asks, in her original post, how come the Greek body politic has bayed for Georgiou's blood when he very likely produced the first accurate deficit figures in decades, yet have never called to account the former ESYE heads who reported artificially low deficits; even though these brought about the threat of legal sanctions and the reality of national humiliation. The reason is that much of the Greek public either believes the inflated deficit myth or desperately wants it to be true; and as ELSTAT is institutionally weak, kicking it is a costless way of earning fetid brownie points with the worst of the Greek electorate.

Barring PASOK, which had no choice in the matter, every major Greek political party has at least hinted that the 2009 deficit was inflated, if not claimed it as fact.

• Ex-PM Antonis Samaras made the claim outright in 2010, in the first of his Zappeion speeches (transcript here): the 2009 deficit was inflated in order to justify engaging the IMF in the Greek bailout. And while Samaras dropped this line immediately upon taking power, New Democracy's onetime spokesperson, E. Antonaros, insisted on pushing the inflated deficit myth as late as 2014. 
• Syriza's leader, Alexis Tsipras, called the 2009 deficit review a 'premeditated crime,' despite his own party warning about the ballooning deficit as early as Q1 that year. Nor did Syriza repent as it drew closer to power: Tsipras repeated the accusations in 2014 (h/t to reader Y.M.), and as late as January 2015, Syriza MEP Papadimoulis demanded a written answer from the Commission on what he called 'the ELSTAT scandal', heaping scorn on the findings of the Good Practice Advisory Committee without further explanation. The infamous Greek Debt Audit report, that sensational executive summary commissioned from a sympathetic body of experts (and otherwise) by Syriza, repeats the myth with no hint of reservation - and with clearly inadequate documentation. 
• The far(cical) right Independent Greeks, rescued from the political scrapheap to buttress a Syriza government, have not only claimed that the 2009 deficit was inflated, but signed the chief 2009 deficit conspiracy theorist up as a party member, gave her a salary courtesy of the taxpayer as part of the utterly un-google-able 'Independent Greeks Institute,' then entered her as an MEP candidate in 2014.
• The Prophet Varouphael, PBUH, has stood out for his unwillingness to blame ELSTAT for inflating the deficit. Although he has taken a marginally less cheap shot at the Greek surplus that gave him the fighting chance at a negotiation that he magisterially wasted earlier this year. 

How else shall I put it? It has been impossible to come anywhere close to power in Greece since 2011 without at least paying lip service to the 'inflated 2009 deficit' myth. So entrenched is the war against ELSTAT that safeguarding the independence of our statistics agency was one of Greece's prior actions agreed with creditors in the July agreement. Of all of the humiliations we endured this summer, including my own elderly parents queueing up for hours to withdraw EUR50 of their own money, I hold this to be the most painful - that our Prime Minister had to be headlocked into a commitment to not interfere with national statistics, as though this were his god-given right.

The early Greek Crisis Propaganda War

This explains the how but not the why of the inflated deficit myth. To understand the why, you need to un-learn the Greek crisis consensus that has emerged since 2012, and try to think back to late 2009 and early 2010.

The Greek government of the day, George Papandreou's PASOK, spent most of its time handling the crisis in deep denial. Their narrative, both pre-bailout and post-bailout, was that Greece was under attack from evil speculators making a killing by shorting Greek bonds or CDSs (remember those?), aided by the international financial press and by credit rating agencies. Though in every other way G-Pap's government has since been soundly discredited, this narrative stuck. There was, until mid-2010, very little public discourse on the sustainability of Greek debt and even committed defaultniks were staking their claim for debt relief on the much less promising premise of odiousness - this was Syriza's core debt relief narrative too, until as late as 2014.

By April 2010, the main villain of the Greek anti-austerity camp was neither Angela Merkel nor Wolfgang Schaeuble, but the IMF - of which Georgiou was an ex-staffer. The eventuality of IMF involvement in a Greek bailout had for months been portrayed as a defeat for Europe, both in Greece and abroad. The IMF had form in imposing harsh austerity; its presence was the hallmark of third-world dependency and loss of sovereignty; and as a US-based institution it was distasteful to the left, the populist right and, to some extent, Greek Euro-federalists. So even if the bailout turned to be inevitable, the reasoning went, it was treason to invite the IMF into our homes.

The Greek blogosphere went into overdrive. The IMF's involvement in our bailout was part of an ages-old foreign conspiracy to bring proud Greece to heel. The second deficit revision, to over 15%, was calculated in order to make sure Greece had a bigger deficit than Ireland and thus scapegoat the country and shame us into obedience. One of the most viral Greek blogposts of all time denounced then-PM George Papandreou as the half-Jewish son of a traitor who had been paid $100m by Chase Manhattan to destroy Greece (an obviously forged 'contract' was even attached). The conspiracy theorist blog, Olympia, soon followed up with the Weisbrot hoax, which went unstoppably viral between 2010 and 2011 and warned of the horrors of IMF occupation, calling on the people to rise up in graphic violence and drive out both the IMF and the domestic elite. This despite Mark Weisbrot, the supposed interviewee in that post, denouncing it as a hoax immediately and persistently. As exotic as they sound, news sources like this wielded enourmous influence. One of Olympia's most prolific writers, endorsed wholeheartedly by the blog, is now an Independent Greeks MP famous for his antisemitic remarks. The blog's admin has even landed a plum public sector job.

As for Georgiou, the appointment of a former IMF man to ELSTAT ahead of the deficit revision was proof positive that the new statistics agency was a Troikan Trojan horse.

Courting the populist right

The deficit-denier fantasy was a perfect fit for the psychological needs of all of these populist right-wing groups, who, in the summer of 2010, formed the bulk what came to be known as the 'upper square' contingent of the Greek Indignados (explanation here). These people were shamed by suggestions of Greek insolvency, and they resented the sneering tone of foreign editorials. But most of all they wanted no part of the austerity to come, and none of the blame.

These people's traditional allegiances had been with New Democracy - the party on whose watch the deficit had got out of hand - or the National Orthodox Alert - the only right-wing party to have voted for the first memorandum. An inside job orchestrated by the Americans supposedly in charge of the IMF left New Democracy blameless for the ballooning deficit, restored the defensive narrative of Greek nationalism, and maintained the fiction that Greece could go on as it always had - as soon as the political elite had been taken to the gallows.

But traditional allegiances had counted for little in the years leading up to the crisis. Leaders of the Left noted that many of the populist Right voters had also opportunistically voted for PASOK in 2008 to steer the country away from the mild austerity promised by Karamanlis. With the exception of nationalism, and possibly religion, these people had no ideology and were contestable political ground. It was this opportunism in the Greek populist right that made them so attractive to parties across the political spectrum. Hit the right, shrill, defensive, patriotic notes, and they would swing. These are the people Syriza officials were going for when they choose, back in 2013, to throw in their lot with the Independent Greeks. These are also the people Syriza officials had in mind when warning that a failed negotiation would bring Golden Dawn to power.

There is a pattern here: Greek politicians have always thought it acceptable to weaken important institutions in the pursuit of votes. The problem is that the damage cannot be controlled, much less undone when the political hour of need is over. New Democracy's initial protests of an inflated deficit figure, normally part and parcel of a government handover in Greece, mutated into a full-blown conspiracy theory. No party with an eye on the votes of the populist right had the guts to stand against it. Today, Syriza hopes that Georgiou's departure will lay the matter to rest while allowing the government to honour its obligations to our creditors. It will not. These people do not realise what damage they are doing.

Part 2 of this post is now available here.

RUNNING OUT OF MONEY - NOT AS SIMPLE AS IT LOOKS

When will the Greek government run out of money? It's hard to know how to begin answering the question, but this has not stopped anyone from trying to guess over the last two months.

First, Bloomberg ran with February 25th; then Reuters ran with April the 9th; then Reuters ran with the 20th of April and Bloomberg ran with April 24th. The Beeb have their sights on the 12th of May, when the IMF needs to be repaid. Bruegel did the math on our financial assets here and found that Greece could stay afloat till the summer. The WSJ narrowed this down to July 20th, when a large amount of ECB debt becomes due, on the back of a major round of T-bill repayments. The Guardian seems to agree.

This speculation is sometimes driven by statements by Greek officials (typically unsourced and subsequently denied), but mostly by analysts poring over our schedule of repayments to the EU, the ECB and the IMF and trying to work out whether we'll have scraped enough money together from our tiny surpluses, predicted to come in at EUR200m-300m per month in the second half of the year, and T-bill auctions (which our own banks can no longer be forced to absorb due to the ECB) to pay these off. The speculation suits both sides, and is part of their negotiation tactics; since neither side wants Greece to default, underlining just how close the country is to default is important for both. There are reports of cautiousness and fatigue around such estimates, but they just keep coming.

You can compare and contrast the main repayment timelines here, here and here. You can also see the Economist's very recent and complete estimates of pending payments below, and contrast them with Greece's recent record of monthly surpluses. The reason why March, April and May were such popular targets for default theorists is partly that a very substantial amount of debt came due in March and partly that the three months are persistently cash negative for the Greek government, and there's three of  them in a row. Even Greece's original bailout request came in April 2010. But the barrage of large repayments in the summer is even more compelling.

If you ask me, this method of comparing payments due with monthly surpluses is a little misguided. It works well for people used to commenting on highly leveraged organisations such as major banks. Instead, Greece is far more likely to run out of  money the way a medium-sized business would - in denial, tapping suppliers for credit, leaving staff unpaid and dodging debt collectors. This kind of default is messy - suppliers will down tools and refuse to provide further goods and services; staff will do likewise, e.g. through industrial action; and creditors will use their influence to cause difficulty and embarrassment. As a rule, messy defaults tend to amplify the original cash shortfall, as planned revenues remain unrealised or uncollected and expensive patches are needed to deal with interruptions in vital services.

The first sign of a messy default was the Greek Government's preparations to seize the surpluses and/or reserves of General Government entities. You can see these cash positions (currently up to Q3 2014, which isn't helpful) here, or check out the Bruegel article cited earlier. The Greek Government is already working in this direction, e.g. passing a law allowing it to force pension funds to buy T-bills, and mulling raids on the cash reserves of state enterprises. and other entities. But it's not just suppliers that can be tapped for credit - it's workers, too.

What might surprise outsiders is that Greece had a tradition of leaving general government contractors unpaid for a long time even in the good days - especially when their programmes had complex funding structures. But pockets of unpaid labour have started to spring up in recent months, including hospital doctors, auxiliary doctors, and general practitioners tied to the health service, local authority tourism staff, social workers, local authority staff on disability inclusion programmes, psychologists working for immigrant detention facilities, archaeologists, or exam invigilators.  Most, though not all, of these have been unpaid since before Syriza came to power.

This is horrible news for the people involved, but good news for the Greek Finmin: it is much harder for him (us!) to run out of money than people expect. Once a sovereign enters this cynical looking-glass world, and learns to view their own staff and suppliers as a source of finance, all expenses become opportunities to raise cheap funding - by paying late.

Here are the payroll and procurement expenditures of the Greek government from early 2006 to Q3 2014. I use intermediate consumption as a close proxy for procurement, for which figures are not released with this frequency. The sum comes up to a cosy EUR7.3bn per quarter.

How much of this are we already tapping? In our quarterly financial accounts, you can find both the stocks and flows on a quarterly basis under 'other accounts payable' (see here for the figures*, and here for definitions). The figures show that, for the first time since at least 2006, the Greek state was net paying off creditors throughout 2014, to the tune of around EUR1bn per quarter - a shift in policy that was equivalent, in cash terms, to a small fiscal stimulus.

Unfortunately, we don't have recent figures beyond Q3 2014, but at least we can establish the orders of magnitude involved. The Greek state has never been able, post-crisis, to get away with borrowing more than a tenth of its procurement and payroll expenditure from staff and trade creditors. If it were to go back to this level now, it could count on about EUR1.8bn per quarter, albeit only for a very short period of time. It was only able to squeeze that much out of creditors back when its was creditworthy after all. Additionally, government agencies are now bound by the Late Payment Directive, which limits the terms of credit they can demand to 30 days (60 for hospitals).  A more realistic target would be to simply get back to being cash neutral, which is still a stretch and would yield closer to EUR1.1bn. That would be enough to cover our summertime debt payments, and see us through to the traditionally cash-positive second half of the year.



But here's the deal. If Greece is to use this tactic to pay off the debt coming due in June and July, it needs to start delaying payments right now - and Syriza's populist government cannot afford a buildup of many months' worth of selective defaults on its own people. Generally speaking, this kind of internal borrowing is hair-raisingly risky, and cannot be sustained for long without risking total collapse.

So the bottom line is, behind the scenes the Greek government should be drawing up a list of the people it can afford to piss off for a couple of months, and who can afford to wait. If it manages to draw on suppliers and state employees for the credit to see it through July, and if it manages to control spending thereafter despite its pre-election promises, it just might scrape by the rest of the year, after which our repayments schedule becomes quite uneventful (see below, from here). It could work, but it's fraught with threats to the economy and to social cohesion.

*I notice that, bizarrely, the stock and flow numbers don't reconcile after Q2 2014 - i.e., there are changes to the stock of trade creditors that cannot be accounted by transactions, i.e. by the state paying off its debts to suppliers. I have no idea what this means but it looks odd.