It borders on the impossible to fake data on this scale and in such amounts. The deficit forecast for 2009 (the year the crisis started) was 3.7 which got revised to 12.5 percent at the end of that year. Any sufficiently large institution or cooperation that wanted to have access to the real data, could have done so with minimal effort, you can't hide a 10% budget gap.

The false data Greece reported to get into the Eurozone was an open secret, I vividly remember it being talked about extensively in Greek cafes after 2001.

> It borders on the impossible to fake data on this scale and in such amounts

the more cynical among us ahem would probably say that it borders on the impossible to accurately report data on this scale and in such amounts, regardless of intention.

The cynics would be right. I've seen financial instutions report data using poorly defined regexes on bank statements. Regexes which could easily yield false positives and negatives.

> It borders on the impossible to fake data on this scale and in such amounts.

It's quite far from being impossible. Actually, it's a widely known fact that a string of greek governments systematically falsified Greece's books, and it actually culminated with Greece going as far as hiring Goldman Sachs to hide their double-digit deficits.

> The false data Greece reported to get into the Eurozone was an open secret,

That's the old attempt at diffusion of responsibility that often pops up. It's the same old tired argument: once the fact that Greece did in fact cooked its books and falsified their accounting for years, there comes the argument that they still have no responsibility for their own actions because somehow.... others might have known they were falsifying their records?

It's a lame excuse, and it never sticks.

This is silly. The idea that Greece was systematically hoodwinking the rest of Europe and no one had any idea is absurd. They're not fools.

They did get "help" from Golman Sachs to come up with numbers that allowed them to enter the Euro in the first place:

http://www.independent.co.uk/news/world/europe/greek-debt-cr...

Were the banks truly deceived, or just hoping that they could cash in and be bailed out?

1. The incentives were just so aligned that I think a lot of people might have had their private misgivings, but held their nose and went ahead.

Apart from the AAA rating, government bonds also had a very low risk rating in the Basel accords (Basel I, and Basel II that just came into effect during the global financial crisis 2008).

Basically, the Basel accords specify a minimum capital adequacy ratio, that is a certain minimum capital level to support given risk weighted assets. (Capital in the bank context basically refers to equity - i.e. funding that can absorb losses without the bank going bankrupt due to debt obligations they cannot fulfil.)

Now, the risk weight for government bonds is zero! (in Basel II, they had to be AA or AAA, and it gets complicated quick, but basically...) So you can load up on them without having to increase your equity cushion.

2. This allowed banks to increase their Return on Equity, which influenced bankers' pay.

3. Furthermore, I think they were all implicitly banking on either bailouts (directed at individual banks) or a version of "The EU would never allow a member government to go bust".

So, I think everyone was in it to an extent (while formally "correct" and "safe"), cashing out merrily, and hoping for the best.

Another great book on this, by the way, is The Bankers' New Clothes: What's Wrong with Banking and What to Do about It by Anat Admati and Martin Hellwig.

(Funny side note: I searched "bankers new clothes" on Amazon to get the author names right, and got a page with dress shirts and briefcases.... :-)

In Basel 2 indeed government bonds need indeed to have a rating of AA (AA- IIRC) or higher to be considered completely risk-free. However Greece never reached an AA rating, it was A in 2008.

Probably both. I still remember a full-time ad in The Economist around 2006-2007 by a German Landesbank, where they were promoting themselves as the coolest of things when it came to banking and managing clients' money. Not 2 years passed and that same Landesbank was by then in very serious trouble because it had invested heavily in US mortgage derivates, I think there was also talk of its general manager doing prison time. He probably didn't.

AFAIK the only guy who did jail time for crashing the world's economy and wiping out retirement savings of millions of people was a guy who copied some utility code to dropbox when he quit Goldman Sachs.

Sergey Aleynikov spent a year in prison for copying some code over. Fabrice Tourre (self-proclaimed "Fabulous Fab", a nickname that ought to be mine! :) was indicted by the SEC for his role in selling dodgy mortgage backed CDOs.

https://en.wikipedia.org/wiki/Sergey_Aleynikov

https://en.wikipedia.org/wiki/Goldman_Sachs#Abacus_mortgage-...

> "The whole building is about to collapse anytime now," Tourre wrote to his girlfriend in 2007, the SEC charged. "Only potential survivor, the fabulous Fab … standing in the middle of all these complex, highly leveraged, exotic trades he created without necessarily understanding all of the implications of those monstruosities!!!"

https://www.usatoday.com/story/money/business/2013/08/01/gol...

Yanis describes in The Weak Suffer What They Must? that the situation was very simliar to the subprime crisis in the states. Giving a lot of risky loans that then could be split and re-packaged.

So did Italy and possibly France. It was a very well known, old trick. Of course it's Greece's fault, but everybody else (Germany, France, Italy, etc.) were on the same page. Greece didn't cheat anyone, it just went along with what it was proposed to in order to get in the common currency.

Accusing Greeks of false statistics and what-not was part of political propaganda in Greece and abroad more than anything else.

> Greece didn't cheat anyone,

So falsifying their accounting to hide double-digit deficits as well as tehir massive debt is not cheating anymore?

In its entire history Greece never had an AAA rating. The highest was A+/A1 in 2004. In 2008/09 it was at A/A-.

Greece has been cooking the books for a long time, even their entrance into the EU was fradulant. Greece is the blame here via its decades of fraud that finally caught up with it. As a Greek-American with an interest in Greece being successful I think all the finger pointing at Wall Street or Germany is asinine. Greece is horribly corrupt and tax dodging is like its national sport. Its like someone turned Chicago into a country. All of its out of control spending, unsustainable union perks, and unrealistic pensions finally caught up with it, just like its happening in Chicago right now. The difference is Chicago and Illinois can raise taxes and make appropriate cuts over the long term, but Greece won't unless strong-armed by Germany and others.

Ultimately, a shared currency with nations with such disparate levels of income and corruption just doesn't work out in real life like it does on paper. Arguably, Greece could have restructured its debt and engaged in inflation with its own currency and handled this much better, but that's not an option when you're wed to the Euro. Personally, I like the idea of the EU, but a shared currency is extremely questionable.

Credit ratings are just that, ratings, not investment advice and like all ratings should be understood to be of limited value. A nation state can hide quite a bit from organizations like Moody's and every election changes leadership, so there's no static "Greece." Instead its a handful of parties fighting for power with different agendas and goals and with differing levels of corruption and incompetence with a baseline being pretty bad to begin with. Heck even senior Moody's staff were warning investors about Greece and its dealings with Goldman[1]. You'd have to be a little thick to think that AAA rating meant no-risk. All investment involves risk.

I suspect the larger economies always saw Greece as their 'little brother' and countries like Germany had a sort of "Well, if we give them money, they'll build industry and catch up to us eventually," instead Greece blew it on pensions for people retiring at 50, questionable social programs, and other unsustainable and unwise spending.

I sense a high level of paternalism in general from other Europeans especially when I'm perceived as a native Greek when in Europe. Sadly, I think everyone would be better off if we were rougher with Greece and instead of seeing it as our tourist-friendly 'little brother,' but instead as our dishonest and thieving neighbor. I hope this current crisis has changed perception and paternalist attitudes in Europe and made everyone think about the limitations a shared currency creates.

[1] http://www.nytimes.com/2010/02/14/business/global/14debt.htm...

In 2008, Goldman helped the bank put the swap into a legal entity called Titlos. But the bank retained the bonds that Titlos issued, according to Dealogic, a financial research firm, for use as collateral to borrow even more from the European Central Bank.

Edward Manchester, a senior vice president at the Moody’s credit rating agency, said the deal would ultimately be a money-loser for Greece because of its long-term payment obligations.

Referring to the Titlos swap with the government of Greece, he said: “This swap is always going to be unprofitable for the Greek government.”

Yes, the constant bailouts are disrupting a necessary mechanism for markets to function, price discovery. Subsidize the losses, privatize the profits, so why bother pricing risk appropriately (which may also include not pricing it at all because it's impossible to predict 10, 20, and 30 years into the future, see pensions).

>The difference is Chicago and Illinois can raise taxes and make appropriate cuts over the long term

Chicago, Illinois, New Jersey, federal, and most of the other governments will also be defaulting, just not by name because of course you have to prop up the bond markets. What has been happening, and will continue happening, is under investment in infrastructure, education, cuts to promised benefits (which is a default in and of itself), and inflating away a portion of it. Basically a continuous erosion of quality of life to keep the game going.

This is a "moral hazard" line of thinking that distracts from the underlying fundamentals of the economics here. Even without the corruption, Greece would eventually be in this situation in the EU because of the structural trade imbalance. Nations like Germany, Sweden, Norway, etc, export far more than they import and do no share the profits. The EU has become a giant capital vacuum cleaner from the poorest nations to the wealthiest. Without fundamental changes to this, the EU is doomed. Greece is just a symptom.

Correct, its also worth noting that the US do have mechanisms in place to transfer funds from surplus areas to deficit areas.

As does the EU.

It has some sharing, but it's not enough.

For example, California sends 180 billion in tax revenues to the fed while accepting approximately 30 billion in federal spending. In the EU this kind of thing occurs only in the single digit billions.

Indeed. The problem is that populist politicians in "paying" countries can use this as an argument for an EU exit. See Brexit. It's hard to sell to pay billions, especially if stuff like hours/week, retirement age etc. are often nicer in those countries that need the money.

The problem is that the populists are able to make that argument at all. Most establishment politicians in Europe are trying to be as much like Weimar as possible in all the wrong ways (austerity, wage repression, pension slashing, privatizations, etc.).

> As does the EU.

Are you trolling? What kind of mechanism does the EU have? How does Germany have such a high surplus if such a mechanism is in place?!

Trade surplus is neither evil nor a problem in itself.

Trade surplus without a safety valve (the ability to devalue a currency) is very much a problem since it leads to unsustainable debt buildups.

Germany should be running a trade deficit with the rest of Europe right now but it refuses to.

Unless your currency policy is fixed by those you buy from. That's the fundamental problem here.

It has TRADE surplus. You were talking about funds. There is a substantial amount of money flowing from Germany, France and others into less fortunate countries via EU governed programs.

Not the same kind of money, though. This is money that is part of the problem. The money goes in and the debt goes up twice as much. Not the same as the California example above.

No I'm talking about TRADE surplus.

But EastLondonCoder and davrosthedalek were not talking about trade surplus. You are yelling at them for saying something that is true, because they're not talking about what you think they're talking about.

You are going to need to be more precise there.

> I think all the finger pointing at Wall Street or Germany is asinine.

1. They knew what Greece was up to. 2. They facilitated it - or turned a blind eye. 3. They benefited from it.

I don't see how it's unreasonable for everyone to share the blame for this. Sadly the cost can't be shared as equally as the blame.

So your big argument that everyone is to blame is that somehow you assume that others might have suspected that Greece did extensively falsified their accounting to hide double-dgit deficits and massive debt?

Because I'm pretty sure that greek governments decided all for themselves to pile up even more debt and falsify their records to hide it from the public.

> So your big argument that everyone is to blame is that somehow you assume that others might have suspected that Greece did extensively falsified their accounting to hide double-dgit deficits and massive debt?

Well. Yes. And even in your reformulation, it sounds like a fairly reasonable argument.

>>I suspect the larger economies always saw Greece as their >>'little brother' and countries like Germany had a sort of >>"Well, if we give them money, they'll build industry and >>catch up to us eventually,"

Do you really believe that? After all we have seen, do you think that Germany cares about the greeks? And they say Varoufakis is naive.

Greece has lost more GDP for more time that the states in the Great Depression, and you know what? there is not end in view to that. They can't do anything because they don't control their currency.

Everybody know that the debt never will be pay, but instead of facing that, they just "extend and pretend".

All the predictions of future growth from the Euro institutions and the IMF are wrong year after year, but they just keep doing the same. What was the definition of insanity again?

If you have an interest in Greece "being successful" you should check the facts again.

People in Chicago pay taxes. You know the city well and know this isn't a valid comparison. If you have to use our shared hometown as an epithet, make it one that's relevant to the place.

Some medium to large private investors treat ratings reports as signposts nothing more. But a disturbing proportion of investment traders / dealers seem to treat them as a tick box exercise or a "nobody ever got fired for buying IBM" CYA instrument.

After one week of working on a stockbroking floor I was disabused of almost all the economics I learnt in school.

It's wasn't exactly "fake data". It's just that Greece decided to use its own custom-made "IFRS" that were conveniently misrepresenting debt (among others) to make "this year look good".

Varoufakis's tactic was "catenaccio" (for the football/soccer aficionados). What Italian football/soccer teams established in the 80s and Barcelona perfected in the 00's, meaning keep the ball, pass it around with no purpose to attack/defend, just delay till kingdom come. Because since we will never "win" (maintain an inefficient and ineffective economy), we will also never "lose" (progress, liberate professions, promote state transformation, reduce of corruption and cronyism).

And this is why Greece is suffering this brain-drain while at the same time the economy is struggling.

Don Quixote was an honorable figure. Varoufakis, Tsipras and the rest of the happy campers in government are just a useless gang feeding of a dying country.

Catenaccio is totally different to Barcelona's attacking possession based game also referred to as "tiki-taka" or "total football," popularised by Cruyff. This style is actually the counter to Catenaccio.

https://en.wikipedia.org/wiki/Johan_Cruyff

Greece won the euros in 2004 as heavy underdogs playing heavily defensive, fast counter-attacking, catenaccio style football. It's not fun to watch.

> Varoufakis's tactic was "catenaccio" (for the football/soccer aficionados).

You are Greek right? That kind of comparison of politics to soccer is something that many Greeks are accustomed to, hence my assertion.

Btw Varoufakis clearly states that this method was employed by the rest of Europe, not him. Feel free to call him a lier, but this directly contradicts his statement and so some proof is needed to substantiate your statement and provide more credibility to it than his.