How 'magic' made Greek debt disappear before it joined the euro

by Allan Little

BBC News
February 3, 2012

Greece is at the heart of the ongoing eurozone crisis, but is past sleight of hand by Greek statisticians to blame for the country's current financial meltdown?

"We used to call him the magician, because he could make everything disappear.

"He made inflation disappear. And then he made the deficit disappear," recalls Greek economist Miranda Xafa.

In the 1990s Miranda Xafa was working for an investment house in London, watching from a distance, as her native Greece got ready for membership of the euro.

She knew - and advised her clients - that the country's economy was not ready, that the statistics its government was publishing did not reflect reality.

"I used to come to Athens from London, with clients of Salomon Brothers," she tells me.

"We always saw the head of the statistical agency of Greece, who compiled all the statistics on the debt, the deficit and so on."

He was "the magician" who made inflation and the deficit "disappear".

The new fiscal treaty that 25 of the 27 EU member states agreed to this week is meant to ensure that in future no country has a budget deficit of greater than 3% of GDP.

That same 3% rule was first enshrined in 1992, in the Maastricht Treaty, which led to the creation of the euro in the first place.

But some countries did not respect it. In the case of Greece, not even from the beginning. Greece cooked the books to join the euro in the first place.

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