IFFs cost Greece an estimated US$160 billion over the last decade

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The continuing financial crisis in Greece has made international headlines. Many economic experts are convinced that the current round of austerity measures is entirely too draconian to be stood for long. The consensus among the Greek middle and poorer classes is that the rich should pay for the cost of resolving this crisis.

Corruption and Graft Are Widespread Throughout the Nation

Georgios Papandreou, the Prime Minister of Greece, recently made an astounding admission. Mr. Papandreou revealed that the corruption and graft prevalent throughout the nation is currently draining the economy by a combined amount of 20 to 30 billion dollars per year. This is an amount that equates to 8 to 12 percent of the country’s total GDP.

Some experts have amended this figure with the supposition that Papandreou is talking about graft and corruption as separate activities. If this is the case, then the size of Greece’s “underground”, i.e., criminal, economy would equate to something more like a total of 18 to 21 percent of the nation’s total GDP.

Illicit Financial Flows Are Increasing Throughout Greece

Illicit Financial Flows (IFF’s) have been on the increase for quite some time. At the end of 2009, it was estimated that the country lost 160 billion dollars due to these illegal outward money transfers that went unrecorded.

At the same time, there were also a series of equally illegal transfers of cash back into the country, to the tune of 96 billion. This would seem to be the result of deliberately misleading invoicing.

This practice represents a chronic system of trade mispricing that was created in order to cover up the illegal gains that came from the evasion of import duties as well as the smuggling of various goods.

While these inflows of illegal cash were significant enough to be recorded after the fact, they do not represent an accumulation of funds that can have any positive effect on the nation as a whole.

On the contrary, they remain equally as harmful as any series of illegal cash outflows. This is due to the fact that they are gathered in to feed criminal enterprises or the simple greed of business owners who prefer to avoid paying what they owe through tax evasion and money laundering schemes.

Illegal Cash Flows in Either Direction Are Underestimated

An even more sobering point to ponder is the fact that most experts and commentators, Greek and foreign alike, tend to be in agreement that these illegal cash flows have not been accurately represented. Most of them tend to feel that the illegal flow of money, whether to or from the country, has been vastly underestimated.

This pessimism is due in large part to a widespread perception that the quality of the data concerning such issues as balance of payments, internal and external debt, and national accounts is heavily “cooked.”

As a result, not many experts trust these regularly generated figures, nor do they tend to put much stock in the national institutions that publish them. This skepticism on the part of economic authorities plays a large part in the perception of Greece as a nation plagued by irresolvable issues with corruption and graft.

The Financial Deficit Has Been Adjusted Upward

Meanwhile, the fiscal deficit of Greece has been adjusted upward from 12.9 percent to 13.6 percent. This figure flies in the face of earlier assessments by the IMF that gave high marks to Greece for transparency and accountability.

For many onlookers, both inside and outside of the country, this adjustment confirms the fact that continuous cooking of the books has made any attempt to gauge the real figures a thankless task.

Can Debt Restructuring Lead to a Workable Solution?

In the wake of the largely acknowledged failure of austerity measures, many international commentators have pointed to the need for a new solution to these pressing issues. Many have begun to suggest that a comprehensive program of debt restructuring may be the key to a gradual improvement in the Greek economy.

The main caveat to the adoption of such a program is that many would tend to equate it with a defaulting on the national debt. However, this need not be the case. A program of graduated debt restructuring could conceivably be carried out along lines that the nation can live with.

It may be worth noting that this delicate financial restructuring may be the only alternative to continuing corruption that could ultimately lead to a complete unraveling of the Greek economy.