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Germany’s Debt is More than Double that of Greece’s!

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Greeks protesting austerity

Austerity advocates inspecting Greek assets

COMMENT: Much speculation has followed the Greek election, which saw the left-wing Syriza Party garner enough votes to put together a coalition government.

Ravaged by what we called “Clausewitzian economics,” Greece has been crushed by the German austerity doctrine, echoed by the so-called “troika”–the European Commission (a German puppet organization at present), the European Central Bank (which has shown some signs of relenting) and the IMF (which has belatedly admitted the fundamental error of its ways).

A recent article in Forbes underscores the flawed accounting underlying the lethal fiscal policy imposed on the citizens of the “cradle of democracy.”

As discussed in a recent New York Times article, the Greek debt has been calculated using an unconventional accounting paradigm to arrive at the conclusion that Greek debt is “175%” of GDP. The Greeks are in need of adopting the “Ipsas” accounting standard.

In fact, it is 18%, when calculated using the standard “Ipsas” accounting method. Germany’s on the other hand, is 46%, when calculated under that standard!

It is going to be more than a little interesting to see how Deutschland, major EU financial institutions and the Greek citizenry square off over this.

“Greece’s Net Debt is 18% of GDP, Not 175%. What’s Germany’s” by Panos Mourdoukoutas: Forbes; 1/22/2015.

Before imposing another round of austerity on Greece, Germany should fix its own accounting problem — by calculating Greek debt, and its own, with accepted international standards.

As Greek citizens head to the polls this Sunday, German officials have not missed the chance to remind Greece that it must fulfill its debt obligations. This means adhering to an unprecedented austerity which has depressed the Greek economy.

The trouble is that Germany has been overestimating Greece’s debt by failing to follow the International Public Sector Accounting Standards (Ipsas),which measure liabilities and assets over time.

Ipsas standards are similar to those used by leading governments, businesses, banks and investors at all levels, according to Professor Jacob Soll. “In fact, the debt has been calculated to be larger than it actually is, or would be if one used Ipsas,”writes Soll in a recent New York Times op-ed.

Just how much is Greek debt overestimated?

The answer is to be found in www.freegreece.info. If you apply Ipsas to calculate Greek debt, the Net Debt is 18%, not 175% of GDP.

What about Germany’s Net Debt under Ipsas? 46% of GDP.

That means that Greece’s debt situation is better than that of Germany’s!

So why doesn’t Germany use Ipsas to calculate the Greek debt? For two reasons, according Professor Soll. First, they don’t apply Ipsas in their own House.“A little-known fact is that the Germans also do not use Ipsas and have notably opaque public finance standards,” he writes.

Second, by steering away from Ipsas, Germany can keep Greece on the leash while conveniently keeping Greek debt off its own books.

“One reason might be that the Germans have refused to price the debt fairly, or properly report its value, which means in the short run that they extract more austerity from the Greeks than they should, and that they also keep this loan off the budget balance sheets because it would come up as a loss under any legitimate accounting standard,” writes Soll.

In our opinion, there’s a third reason. Overestimating sovereign debt for Southern European countries stirs anxiety in foreign currency markets, depressing the Euro, and firing up Germany’s export engine.


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