When the Central Greek Banker Silenced the IMF

At one point in his speech, he even claimed that, on May 2008, Bob Traa, sent to Greece by the IMF had expressed the opinion that Greece's external debt would be over 800%. “We asked him not to publicize this” said Mr.Provopoulos who, at the time, was not even the head of the central bank of Greece. The claim of the former BoG leader only strengthens the questions on how long before his appointment he knew that he would become the head of the bank. In fact it offers a basis for the suspicion that he was, unofficially, acting as a governor for some time before. This becomes a particularly sensitive issue since at that time he owned Bank of Peiraeus stocks, thus performing his duties in a conflict of interest. He was both the controller and the one under control.

It is worth mentioning that Mr.Provopoulos became the Head of the National Bank of Greece after he was appointed by the then Prime Minister, K.Karamanlis. That was a month after he managed to use his influence in order to bury the IMF report. 

“In 2008, when the first signs of the crisis started showing, the , so called, actuary debt of the public insurance funds were running debts approximating 400% of the GNP. This was an 'invisible” debt which should be added to the actual debt which we officially  were statistically calculating to be 120-130%. And I remember that on May, 2008, Bob Traa, who had been send by the IMF in order to comply a report on the Greek economy had calculated the Greek national debt, in any form to by beyond 800% of the GNP and we implored him not to publish this because it would be chaos if he published it. Still, this was the reality and they pretended like they wouldn't see it”.

The mathematics and the statistical practices in the banker's recollection are highly unusual in many ways; for one it is problematic to add actuary to actual debt. It is also worth noting that even if the add up is correct, it is nowhere near the 800% which Mr.Traa had, allegedly, come up with.

Living aside the questionable arithmetic, the main question emerges from the narration of Mr.Provopoulos which describes him as the man who was able to persuade an IMF representative to keep reality at bay in order to protect the Greek economy. At the time, Mr.Provopoulos was the vice president of a commercial Greek bank. 

A consequence of this interaction between the banker and Mr.Traa let the infamous “Greek statistics” go on for almost two more years, during which the Greek state was able to borrow a further, massive 58bn euro. The IMF, one of the most prominent voices of the international markets kept its silence about the real condition of the Greek economy. A few months after Mr.Traa's visit to Greece, Lehman Brothers collapsed, starting the well known domino of international economic crisis. Mr.Provopoulos, now central banker, was assuring everyone that the Greek economy is “bullet proof” with little to no exposition to toxic funds.

A few more words about the man who was at the helm of the Bank of Greece are worth reading.

Questions remain about Mr Provopoulos’s relationship with Piraeus Bank (his former employer before he took over as central banker) and with its chairman Michael Sallas: from the eyebrow raising 3.4 million euro severance payment he received from the bank to numerous regulatory decisions taken by the BoG under his governorship that, according to critics, appear to have favoured Piraeus bank.

A report by Reuters in October 2012 revealed that Mr Provopoulos had enjoyed special treatment when he stepped down from Piraeus Bank to take over as governor of the Greek central bank. As Reuters pointed out, “the governor of the Bank of Greece was given a severance payment of 3.4 million euros when he left his former employer, a major bank that he now regulates”.

The severance package granted to Mr Provopoulos amounted to more than two million euros per year of service, a notable sum when compared to what other directors of the same rank received when they departed from the same bank. As a measure of comparison, another vice-chairman was given an exit payment amounting to less than 100,000 euros per year of service.

From the New York Times: “Provopoulos’s critics argue that the playbook used in the Proton deal — described as a series of back-room maneuverings that rewarded Michalis G. Sallas, the domineering chairman of Piraeus Bank — was deployed repeatedly, most recently when Piraeus bought the Greek operations of three Cypriot banks last March at a knockdown price of 524 million euros, and a few months later booked a profit of 3.5 billion euros on the transaction.”

Similarly Mr Provopoulos came under criticism in 2012 over ato put the non-performing loans of the struggling state run Agricultural Bank (ATEbank) into a separate ‘bad bank’ and hand the rest to Piraeus Bank. Opposition MPs argued that the private lender has been gifted the deposits and assets of the state bank. Provopoulos defended the deal in parliament claiming “this was the only viable option”. Otherwise, “[t]he systemic stability that we have carefully safeguard would have been shaken”.

“Few [in the world] hold as much power within their own country as Georgios A. Provopoulos” said a New York Times reportpublished when he was still the central banker. His judicial travails set aside (and it’s too early to say whether he will eventually be brought to a court), Mr Provopoulos is leaving the Bank of Greece with the aura of the man who “played a crucial role in keeping Greece out of bankruptcy and in the euro zone” (from the same article). Mr Provopoulos in an interview given just before he stepped down from the central bank, confessed: “I spent many sleepless nights not knowing in what currency I would wake up to.”
 
You can find much more about the former chief of the Bank of Greece here and here