As of midnight Tuesday, it now appears that Greece has defaulted on part of its debt by missing a $1.7 billion loan payment to the International Monetary Fund. With its banks now closed, and citizens running out of cash. Greece appears bankrupted by its vast debt load — an immense $350 billion, a figure calculated by the Greek statistics agency ELSTAT, and confirmed by the European Commission.
But wait: is that what Greece really owes? In fact, there are few if any accountants who agree with that number. Due to debt restructuring, many independent observers have calculated the market value of Greece’s debt at somewhere closer to a tenth that number.
That’s a huge difference, and you might think it was trumped up by some radically pro-Greek accountant. But the argument has been made by German bankers, American bond analysts, and international accounting leaders. They agree that if you calculated Greece’s debt by the modern accounting standards known as IPSAS — the rules used by the European Commission itself, as well as countries such as Britain and Portugal — it could be as low as $36 billion.
In May I wrote a column for POLITICO on Europe’s accounting challenges; since I filed it, Greece itself has adopted IPSAS accounting standards. In fact the European Commission has recommended that all EU countries adopt them.
According to IPSAS, the Greeks are supposed to be able to value their restructured debt at the market value on the day the debt was incurred. This is how banks, businesses and individuals currently value debt. In this case, Greece’s restructured debt has extremely low interest rates — far less than 2 percent — and maturities as far in the future as 2054, making them small and manageable.
But instead, the Greek debt is counted on face value — the value of the debt when it was first issued, ignoring all the restructuring revaluations now on the books. The Greek debt was restructured in 2010, 2011, and twice in 2012. But the way it’s accounted for, the Greeks still get no benefit from the new terms: Rather, they’re stuck with a Sisyphian debt that never changes. Essentially, Greece is still trapped in a debt number defined by politicians and not by economic reality.