September 22, 2014
Petros Christodoulou, a Greek investment banker, once quipped “most of the bad news about America’s subprime-mortgage market will be out by the end of August.” It was the beginning of August 2007, just a few weeks before the financial whirlwind that almost sucked in the global economic system unleashed. At the time, Greece was still a successful and prosperous European country, buoyed by the lowest borrowing costs in history. But its comeuppance was soon to follow, as a series of rapid revelations over faulty accounting methods wiped out more than 25% of its GDP and pushed 30% of Greeks below the poverty threshold.
In addition to “accounting errors” a number of financial deals allowed Greece to cut its deficit, in return for repayments over time. Using cross-currency swaps, Goldman Sachs channelled $1 billion of funding to Athens in 2002. On the receiving end of the deal, working at the time in the National Bank of Greece, was the aforementioned Christodoulou, himself a former Goldman alumnus. Such shady dealings were made possible by the integrated capital markets that came with the EU, superimposed over a climate of seething corruption.
Indeed, corruption and tax evasion are at the heart of the Greek tragedy. Otherwise how can one explain the audacity of multiple governments to hide a rapidly rising budget deficit? When the truth came out in December 2009, it became evident to everyone that Greece was not only cash-strapped but outright bankrupt. With Europe’s economy hanging over the edge, and the future of the Euro in doubt, the country was forced to contract two successive IMF-backed loans worth €240 billion, raising its debt from 115% in 2009 to an eye-watering 174% of GDP in 2014. Seven consecutive years of economic decline ensued.
Painful structural reforms were passed, as the government scrambled to overhaul as much as it could, from the pension system to private universities, in hopes of bringing to light Greece’s shadow economy, estimated at 25% of GDP. After street protests, intense rioting and political hand wringing, it seems that good news has finally come to the Greek peninsula.
According to the IMF and the European Commission, the country is set to see its first year “in the green” since 2008, with an expected 0.6% expansion. Moreover, Standard & Poor acknowledged this prediction by upgrading its debt rating, from B-minus to B. Although still five notches into junk territory, the embattled country has finally managed to make a successful return to financial markets. On September 12th, the Greek Finance Ministry hailed its sale of some 1 billion euros worth of three-month and six-month treasury bills, noting that strong demand exceeded initial targets of the bond sale.
With the economy showing timid signs of improvement, can one assume that corruption has been stifled? Unfortunately, not so much, as recent evidence shows that the government’s efforts simply “gave Greeks more official protocol to manoeuvre around”. Transparency International still rates Greece as Europe’s most corrupt country, tied with China for the 80th place in the world.
Although petty corruption is still common, it pales in comparison to what happens at the governmental level. From fraudulent privatizations to businessmen in cahoots with politicians, a foray into Greek corruption reads more like a “How-to” manual. When Prime Minister Andreas Papandreou was told that a leading Greek bureaucrat accepted a big bribe from an Italian company, which wanted to build a hydroelectric dam, he jokingly said that there’s no problem if an official “makes a little gift to himself”. This phrase “became the official green light for generalized corruption at all levels in the 1980s”.
Perhaps one of the most interesting, yet underreport cases in recent memory, involves the Greek shipping magnate and football fanatic Evangelos Marinakis, owner of Olympiacos FC and head of the Greek Super League. Despite being associated with a criminal organization officially charged with match fixing, bribery of officials, politicians and judges, the “untouchable” Marinakis has recently been elected as local councillor in Greece’s third largest city of Piraeus. He will be serving at the pleasure of the city’s mayor, Ioannis Moralis, a former Olympiacos Vice President, whose campaign was largely reliant on the financial support of Marinakis.
Drawing comparisons with Italy’s Berlusconi, Reuters dryly stated that “rarely has big business mingled so openly with politics in a country where contacts between the two are usually conducted behind the scenes“. This is no doubt a worrying development. With the election of the Marinakis/Moralis ticket, Greeks have shown that the same double-dealing spirit that had almost bankrupted the country is still alive and well. Not even an almost total collapse of the country managed to shake up the public consciousness into realizing that it is neither Brussels nor Germany at fault here; it is their own inertia.
As for Petros Christodoulou, after having served for two years as the general manager of Greece’s Public Debt Management Agency, the main government body tasked with restructuring the country’s burdensome debt levels, he was appointed earlier this September as CEO for Marinakis’ shipping company. Indeed, as long as the powerful grow more powerful and inequalities rise with the populace’s consent, the Greek taxpayer will always get the short end of the stick.