by Thanos Kamilalis
Every time that a borrower makes a payment on any kind of loan or credit card, he or she also pays a small but ultimately significant contribution pursuant to Greek Law 128/1975. That levy is calculated as a percentage (0.6% on consumer and business loans, credit cards, etc. and 0.12% on home loans) which is included, under separate heading, in the loan’s interest rate. The banks then deposit that money into a Public Treasury account held with the Bank of Greece. The purpose of this contribution has been, since the 1960s and following the 1974 fall of the military junta, to create a fund, pursuant to law 128/1975, for subsidizing Greece’s export companies so as to keep the country’s export sector competitive. But at the end of 1991, as a result of Greece’s entry into the European Union and European law’s provisions regarding competition, subsidies on export loans came to a halt on the grounds that they were considered illegal state aid. And it’s right around there that the problems begin…
Though it no longer served its original purpose, this levy on borrowers remained in effect and, for 24 years, continued to be deposited in a Bank of Greece “hidden” account—and hence was not accounted for in the national budget. The non-transparent status of the account continued until August 2015, when Parliament passed the Third Economic Adjustment Program. In a sub-paragraph, it voted to use these funds to support victims of “terrorist attacks” or “natural disasters,” at the discretion of the Minister of Finance. Finance Minister Euclid Tsakalotos confirmed this in Parliament last October, in response to a question by Yannis Saridis, MP of the Union of Centrists party.
Tsakalotos confirmed Saridis’ reports on the existence of the levy, and the fact that following Greece’s entry to the EU, it “should have been abolished, but instead continued.” Avoiding—and not, as we shall see–reference to the intervening 24 years, the Minister of Finance replied that “the law 4336/2015 shifted the direction of these funds. The minister of Finance decides where the funds go; they subsidize only those hit by natural disasters and terrorist attacks.” Tsakalotos then announced, for the first time, data on the amount of money in the account. According to what he stated in Parliament and Bank of Greece data, in 2015 and 2016 total subsidies by borrowers reached levels of approximately €436 million and €416 million respectively. Of those, the minister added, €60 million in 2015 and €110 million in 2016 were paid out to victims of natural disasters. These are the exact amounts:
2015
- Income: ~€436 million
- Payouts: ~€65 million (€44 for housing for repatriated immigrants; €12 million for compensation of victims of fires; €5 million to victims of earthquakes; other amounts for flood victims and restoration of heritage-listed buildings).
2016
- Revenue: ~€416 million
- Payouts: ~€110 million (€18 million to victims of fires; €8 million to earthquake victims; €56 million for housing for repatriated immigrants).
The rest has been used as … a ‘fallback fund’. The Finance Minister supported the law: “As one might expect, we always leave a fallback; we do not spend all of this money in case we are faced with larger incidents such as floods or earthquakes. So I think, in this way, the 2015 law works relatively well.” Yet this fallback fund is not accounted for in the national budget. According to a letter from the Greek Treasury in response to a question from the Finance Ministry last May, “the income of this account is monitored by the Bank of Greece, but is not considered revenue for the National Budget.” This means, as ThePressProject sources point out, that a very significant amount (which has climbed to €850 million in just two years) may only be distributed on the basis of ministerial decisions, with no centralized management and with limited accountability.
The logical questions here are, first, whether borrowers should be financing, unknowingly and in the midst of their own problems, such a fund, and second, whether it really is useful for the Greek state to be maintain a ‘fallback’ of at least €700 million—which only continues to grow. And yet, no matter how odd this all seems, these mark just two concerns raised by the whole affair. There are still many other questions, especially regarding the period 1992-2015, when the account appeared to go unused.
“This is murky terrain and we are only at the beginning,” Charalambos Pervanas told the TPP. Pervanas is President of the Association of Borrowers and Consumer Protection of Northern Greece, and has been working on the issue of the 1975 levy for some time now. The purpose of the Association, which has existed since 2009, is to aid citizens by offering general support and directing them to solutions to problems they face in their loan agreements with the banks. “The citizen, the consumer, has been left with no protection from the sharks, who exploit him again and again.” Pervanas added that he believes the state must provide legal support for borrowers, as it had planned to do in 2016. Since then, however, “everyone’s ears have been shut.”
The ‘murky terrain’ reported by members of the Association is also evident from the 1991 decisions regarding the fate of the account. According to a decision of the then-Governor of the Bank of Greece, Dimitris Chalikias, published in the Government Gazette (the official journal of the Greek Government) on September 25, 1991, the “contribution payable by banks for the payment of interest on behalf of the export companies” was abolished as of January 1, 1992.
Yet the situation remains as if the governor of the Bank of Greece had never taken this action. In an amendment from June 1992, we learn that this hidden account is divided into two “secondary accounts,” one for export assistance and one for “interest rate subsidies” (the details of which are unclear). We also learn that, under the authority of the Minister of Finance, the surplus of the account “may be transferred to the State budget as revenue”, but that, according to the answer given by the General Accounting Office and cited above, this has never happened. There are, moreover, legislative regulations which do not deny the existence of the levy, and naturally the banks continue to add “the levy of Law 128/1975” to their interest rate calculations.
For months now, this matter of the levy and the hidden account has been with Parliament. The case that began with accusations made by the Loan Association of Northern Greece has now been met with a series of pointed questions, which MP Saridis addressed to Finance Minister Tsakalotos. Some very interesting facts have emerged as a result of their clashes. In a written statements issued in January, Tsakalotos reaffirmed that the contributions to export enterprises were abolished in 1991 by the Governor of the Bank of Greece. He also indirectly admitted that the levy continued to be imposed, and referred to the change introduced in 2015, with the Third Memorandum (bailout program).
The most important element came to light, however, when the Treasury released a table (available in the minutes of Parliament) depicting the inflows and outflows of the account in question:
A few simple calculations indicate that, in the period from 1992-2014 (excluding 1991, when the fund was indeed used to subsidize business and 2015, when the change was introduced), about €9.3 billion went into the fund and €4.8 billion came out. Some logical questions follow: Where did that money go, and how much money is in the account right now? Shouldn’t it be the case, when, according to the Ministry of Finance, €9.3 billion came in and €4.8 billion went out (where it went, we do not know) that—accounting for 2015 and 2016—about €5 billion should be there now? And this is where the Minister of Finance’s reluctance enters in.
Is it possible that the Ministry of Finance simply does not know how much money exists in an account under its own supervision? It seems that it is. A few days ago, Tsakalotos evaded the question Saridis first posed months ago, namely: “How much money is in this account today?” Tsakalotos never replied, despite the MP’s repeated efforts to hear an account of the sum. Instead Tsakalotos stated:
I should tell you that there is nothing illegal. It is a large account, which as you mention in your question is held at the Bank of Greece. Under this large account there are several accounts, among them the account in question.
He then went on to repeat essentially the same point, only in more detail:
Precisely because it is an account nested within a larger one, it is difficult for me to give the numbers you’re seeking. This is not an account that exists on its own. It is a sub-account within the large account which receives the money that comes in from the ESM [the European Stability Mechanism], and where we keep the money we get from market exits. That’s all. Regardless of whether you understand it, that’s my answer.
The video of the exchange is of immense interest, especially for anyone who thinks it absurd that a Minister of Finance is incapable of providing an answer with specific numbers regarding an account held by the Greek state.
It should also be noted that the document which Tsakalotos mentions at the end of the exchange (and which he was of course initially reluctant to mention) is precisely the 1992 amendment. This is a document that Tsakalotos did not … remember to submit during all the intervening time up to this point. On the other hand, it changes nothing about levy’s use or about the basic question regarding the total reserve. Over the course of the exchange, the minister seems to avoid giving a simple answer, which coincides very well with what we have previously seen of his ministry.
The questions that remain, even apart from those concerning the ‘fallback fund’, follow one after another. The mysteries and the oddities in this case are many. What were the borrowers subsidizing for 24 years, after the initial use of the levy of Law 128/1975 had been abolished? Even if all the money went somewhere perfectly legitimate, even if it was put toward ‘social policy,’ shouldn’t there be more evidence of how, when and why? And of course, what about the account surplus that the Minister of Finance knows exists, and for which he presents a set of inflows-outflows—but whose exact amount he cannot say?
As long as the respondents stall in providing an answer, suspicion only mounts. Has, for example, money left the account, sometime over the course of the 24 years, without ever being recorded? Does it matter that this ‘sub-account’ exists alongside the ESM money and market exits? Will this secret fund, which collects some €400 million a year and remains outside the purview of state budget, be put to use sometime in the future?
Answers will be found. The investigation continues.