IPSAS Explained: A Summary of International Public Sector Accounting Standards, 2nd Edition

3 The Sovereign Debt Crisis

3.1 Evolution of the crisis

At the end of 2009, the sovereign debt crisis started mainly because of the fear of rising government debt levels across the globe. In November 2009, following the Dubai sovereign debt crisis, concerns about some EU member states' debts arose. In December 2009, Greece admitted that its current debts were €300b. At that time, Greece was burdened with debt of about 113% of gross domestic product (GDP), which is nearly double the eurozone limit as set by the Maastricht criteria of 60%. Based on these developments, ratings agencies started to downgrade Greek bank and government debt.

In January 2010, a report of the European Commission (EC) on Greek government deficit and debt statistics identified “severe irregularities in the Excessive Deficit Procedure (EDP) notifications of April and October 2009, including submission of incorrect data, and non-respect of accounting rules and of the timing of the notification”. The report of the EC states that on 2 and 21 October 2009, the Greek authorities transmitted two different sets of complete EDP notification tables to Eurostat, covering the government deficit and debt data for 2005-2008, and a forecast for 2009. In the 21 October notification, the Greek government deficit for 2008 was revised from 5.0% of GDP to 7.7% of GDP. At the same time, the Greek authorities also revised the planned deficit ratio for 2009 from 3.7% of GDP to 12.7% of GDP, reflecting a number of factors (impact ...