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.

Make no mistake: The Greeks aren’t blameless. The Greek state and its banks ran amok, borrowing wildly. Greek society was already broken before the debt disaster set in. But as fiscally irresponsible as the Greek state and banks were, it seems that those giving the loans were even more hubristic. There was never any way Greek could repay the $350 billion, which is 175 percent of a quickly disappearing GDP.

Getting the debt number right clearly matters, not only because it’s fair, but also because it offers an easy financial solution to what is clearly a political problem. It also matters since the whole Greek tragedy has been played out in moral terms: the profligate Greeks borrowed too much money and can’t pay it back. Now, they must be punished.

Greece’s creditors, it’s clear, have the clout to impose their own accounting system. But the good news is that they also have the means to redefine the debt. Any way you look at it, Greece is broke, but the question is by how much and can it climb out.

These restructured loans have kept Europe afloat and bought the EU time. But now, it’s running out. Tallying the debt by modern, internationally accepted accounting standards is the simplest and smartest strategy to solve this crisis. The best part is that it has already been done. Indeed, it’s on the books.

Jacob Soll, a professor of history and accounting at the University of Southern California, is the author of The Reckoning: Financial Accountability and the Rise and Fall of Nations.



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