How Greece saved a debt increase of at least 23 billion euros

By Tasos Dasopoulos

Without drama, it seems that the issues opened by Eurostat in the last audit of the Greek financial data that it did last month are closing.

Examining the guarantees of the state, he also focused on those given by the state for the “Hercules” program, which aimed to reduce the red loans. On the occasion of a securitization of loans amounting to 7.5 billion euros by Eurobank, he considered that the guarantee of 2.4 billion euros provided by the government was insufficient, while the transfer of loans was lagging behind in relation to the business plan. With these data, the technocrats of the European Statistical Authority estimated that the total guarantees of 23.3 billion euros provided by the state to the Hercules program are precarious and therefore should be recorded in debt. This would increase general government debt by more than 210% of GDP.

The answer he received in writing was that the Hercules plan has received the approval of both the EU Competition Commission. (DGComp), as well as the Single Banking Supervision Mechanism (SSM). It was also reminded by the Greek side that in the internal consultation that preceded the approvals of the plan with the European Commission, Eurostat itself participated with its representatives, which had not objected to the Greek plan. The participation of the same service, which is now coming to challenge its position at the time, is also evidenced by the internal correspondence between the two sides.

The strongest – perhaps – argument of the Greek side was that the APS “Hercules” was identical to what was implemented in 2016 and 2017 by Italy, which presented the same individual problems. At that time, however, there was no such remark about the writing of guarantees to the corresponding Italian APS in the – also high – public debt of the neighboring country. All this probably convinced the auditors who no longer seem to insist on their observation, as otherwise they would be exposed.

The property management body

However, in addition to the guarantees of the “Hercules” program, Eurostat executives identified another “hidden debt”. The implementation of the bankruptcy code provides for the creation of a real estate management body. This body will buy from the banks the properties of the households that declare bankruptcy and will manage them for 12 years. During this time, households that rent their home will be able to use it, paying a rent that can be subsidized by the state as a result of proven economic poverty. Unaware of the legal status of the new body, Eurostat officials remarked that the body should be included in the list of general government bodies. Consequently, the money that will be given to buy the real estate of those who go bankrupt, will have to be registered in the deficit and consequently in the debt. Here, the answer is simpler and will be given definitively with the bill for the establishment and operation of the body, which will be submitted within the month to Parliament. In the text of the law, it will be clearly clarified that the majority of the body will have private investors and the company will have real estate management activity. So in addition to expenses, it will also have revenue. The European technocrats were informed during the audit and withdrew their remark.

Competent sources of the financial staff, consider that the double blow of Eurostat, was not completely accidental. They stressed that it sounds more like an early warning to an over-indebted state not to abuse fiscal flexibility that will continue into 2022.