Greece’s true 2009 deficit of 13 percent was double the reported figure

Evidence

Greece had some special structural problems that turned these vulnerabilities into accidents waiting to happen. First, leaving aside all the often-repeated stories of endemic corruption and dubious early retirements, of which there are many, Greece has a weak tax-collection capacity and an even weaker political will to enforce collection, so revenues have never balanced expenditures. Second, government spending was notoriously uncoordinated, with the result that in October 2009 the Greek government revealed that the reported fiscal deficit of 6.5 percent of GDP was in fact closer to 13 percent of GDP. Unsurprisingly, investors regarded this as the ringing of a rather loud alarm bell over the true state of Greek public finances. The low interest rates that Greek debt had enjoyed since adopting the euro via that borrowed German credit rating shot up, which made a difficult interest-payment environment very suddenly awful. Piling on the pressure, the ratings agencies took notice and downgraded Greek bonds from A to BBB−, which compounded the debt burden by lowering prices and further spiking yields. As a result, the economy began to contract such that outstanding debt increased as GDP collapsed. — Mark Blyth, Austerity, 178

Categorization

• XREF: The 6.5% vs 13% reporting gap and subsequent ratings downgrade firing-squad is a precise factual sequence that reinforces Mattei’s account of how austerity narratives get built on retrospective accounting.