Chapter 3: The evolution of the capital market and financial reporting in Greece: a historical
3.3. Historical Review and Economic and Political Developments in Modern Greece
3.3.1 Impact of Western capitalism and its institutions
Capitalist relations of production in Greece were established later than in other Western countries, however, the Greek economy was active in sectors that had close links with Western capitalism, such as maritime and merchandise (Ioannides & Mavroudeas, 2000). The history of accounting in Greece has similarly been determined by Western pressures, as Dedoulis and Caramanis (2006, p. 408) suggest in their study on the formation of the Greek audit profession in the aftermath of WWII. These pressures were ‘channelled through powerful foreign governments, agents of Anglo-Saxon accounting firms and supranational organisations upon emerging states, aiming at spreading Western institutions and modes of organisation’. However, they emphasise the state-corporatist mode of organisation that the auditing profession adopted to highlight the role of the state and other local factors influencing the course of accounting progression.
Appendix 1 provides a historical review of key features of the Greek economy and accounting for the period 1800s to 1974. The development of accounting in Greece following the structural economic crisis of the 1970s until today is discussed in the next session.
3.3.2 Period 1973 till 2005 (pre-IFRSs period)
The 1973 crisis of overproduction of capital and the fall of the military dictatorship put Greek capitalism in a difficult situation, due to the fall in profitability (Maniatis et al., 1999), the intensification of class struggle and the eruption of popular radicalism (Maniatis, 2005). In response to socio-political changes that intensified the pressure for the development of a welfare system and the amelioration of labour relations, bourgeois political parties, attempted to accommodate these pressures through partial reforms, rather than through direct confrontation. Clientele based networks were tied to political representatives in the parliamentary system and the bureaucratic mechanisms of the state, were closely associated with international and local capital (Michael-Matsas, 2010). After a significant time lag, in the post-dictatorship period, conservative Keynesian restructurings of capitalism took place in Greece, followed by the weakening of popular radicalism, a wave of nationalisations, an
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advance of the state sector organisations and income redistribution, particularly after 1981 and the ascent to power of the Labour Party PASOK.35 However, progressive Keynesian policies were inadequate to prevent economic crisis, as Greece had an entirely different socio-economic environment to the rest of Europe. After the second election of PASOK in 1985 and the introduction of its stability programme a neoconservative turn was formally instituted, signalling a turning point in the opening of the Greek economy. This opening up included the integration of the country into a more active participation of Greek capital in the EEC (European Economic Community) (Mavroudeas, 2010). Neo-liberal economic policies will be enforced by the successive governments focusing on EMU requirements under the imperative of the Maastricht Treaty clauses, expansion of privatisation programmes and allowing for foreign capital investment opportunities.
Through the EU, the Greek capitalists participated in the sharing of global markets, while the vigour of the EU provided benefits for European monopolies, and the establishment of special monopolistic agreements and arrangements was beneficial to the development of the Greek capital. Especially since the introduction of the Euro, multinational corporations have dominated the Greek domestic market and competed with other European monopolies in the European market. Greece’s membership of the EU has been a major factor in institutional and other reforms in the country (Mouzelis, 1995). Indeed, all the major institutional reforms to the Greek capital markets have arguably been the outcome of harmonisation with EU directives projects, and, respectively, EU policy priorities have conditioned the Greek socio- political agenda. Successive Greek governments formally set out to implement their commitment to improving the economy’s flexibility and competitiveness; however, any progress in introducing reforms (e.g. reforms of the financial and banking system (L2076/96)), the organisation of the accounting profession itself, or the modernisation of corporate legislation and investment practices (L1969/91) have been the outcome of EU pressures (Ioakimidis, 2001).
The development of an external reporting framework addressed to an international public audience was an essential condition for the country’s entry into the EU. Although the first committee to establish a Greek General Accounting Plan (GGAP) was formed in 1954, the GGAP (in Greek Elliniko Geniko Logistiko Shedio) was established by Presidential Decree 113 in 1980 (PD 1123/1980) (Ballas, 1994). GGAP establishes the basis of the Greek
35 Panhellenic Socialist Movement, Πανελλήνιο Σοσιαλιστικό Κίνηàα [in Greek]
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accounting infrastructure. According to Law 1041/1980, it is a system of classification rules and accounting figures, designed to provide standardised and uniform financial statements for compulsory use by all entities at a national level. It includes a set of basic accounting rules, definition of accounting terms, model financial statements and detailed provisions for preparing annual financial statements and corporate and tax legislation (with certain exception on points of conflict). Given that the Greek Commercial Law was based on, and followed developments in France, the GGAP draws heavily on the French Plan Comptable, which was adopted with some additions and exclusions and tailored to the Greek institutional and business environment (Ballas, 1994). It took almost 30 years to implement the GGAP, and the project was completed and made public in 1981, approximately at the same time as the first application of the Fourth Directive. It brought Greek practice in line with the provisions of the EU Directives (a second edition was published incorporating changes, in 1987), and was part of a broader plan to modernise Greece (Ballas et al., 1998).
The key EU Directives that affected accounting in Greece were the Fourth (Company Law) Directive and the Seventh Directive. The Fourth Directive, which was transposed in 1986 (Presidential Decree 409/1986) and came into effect in 1992, specifies the True and Fair View as an overriding principle, making provisions concerning the presentation and content of annual accounts and the valuation methods used in respect of all limited liability companies. The Seventh Directive, which was transposed in 1987 (Presidential Decree 498/1987) and became effective in 1992, together with the Fourth Directive establishes standards on consolidation and other issues associated with multinational enterprises. The adoption and interpretation of the Directives was not an easy task, and the preparers of financial statements opted for the most conservative options, while Greek translation was sometimes in violation of the provision in the original text of the directive. Infringements of EU directives and accounting legislation were one of the outcomes of the differences between the financial reporting traditions underlying the Directives which represented a move towards the Anglo-Saxon accounting tradition, combined with state intervention driven by lobbying pressures from corporate interests (Caramanis & Dedoulis, 2011).
Following the adoption of the Fourth and Seventh Directives, the EU Council’s decision to require that all publicly listed European companies adopt the endorsed International Financial Reporting Standards from the fiscal year 2005 onwards, as part of the EU’s strategy for the creation of a single market, gave a new impetus to the accounting harmonisation process.
Greece, as an EU member, was required to use IFRSs for all listed companies. However, it
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later adopted accounting harmonisation with the enactment of Law 2992/2002, which required that publicly listed companies on the Athens Stock Exchange apply IFRSs, beginning in the calendar year 2003, two years earlier than in the majority of other EU member states (Government Gazette, A΄54/20-3-2002 Reference).
The early adoption of IFRSs is considered a ‘legitimation strategy’, employed by the government in order to reduce criticism from public institutions, improve company credibility and restore trust after the shock stock market downturn in 1999-2000 (Floropoulos, 2006).
The so-called stock exchange theft, which was the result of an economic policy that drove savings to a stock market bubble was one of the consequences of the neo-liberal restructuring policies in the 2000s. Law 2992/02 never came into force (due to difficulties related to the lack of companies preparedness) but it was made optional, and, in line with EU requirements, Law 3229/2004 (an amendment to Law 2190/20), introduced the mandatory application of IFRSs from January, 2005. Eventually, the first set of annual financial accounting statements prepared according to IFRSs became available in March 2006. Legal provisions apply to every listed company while the accounting provisions of the law, as well as the rules of the Greek GAP only apply to those that have not adopted IFRSs. Where accounting practice is concerned, two markedly different accounting models are currently in use in Greece: IFRSs (the Anglo-Saxon model) and Greek accounting rules (law 2190/1920 and the GGAP),36 which draw on a deep-rooted, tax-oriented tradition. For some of the main differences between the GGAP and IFRS see Appendix 2.
At this point, it is essential to emphasise the role of the Greek state and its structural dependence on capitalism under specific economic, social and political dynamics, which evolved around the pursuit of capital accumulation. Due to nature of Greek capital, and as determined by its historical trajectory and geo-political position in the imperialist chain, its interests were represented by the state and were reliant on the state. Moreover, as the banking sector was mainly controlled by the state bureaucracy the latter acquired significant power reflected also in accounting regulation. The accounting structure applied was influenced by the country’s legal code and the system of raising income, the lack of a profession, the emphasis on the banking sector to raise capital rather than on the financial markets and the
36 Apart from the GGAP and the Law No. 2190/1920 on Limited Companies, accounting regulation is influenced by Art. 29 of the Commercial Code and all relevant laws that determine the preparation of financial statements as well as, the Directives regarding corporate law and legislative decrees.
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weakness of both productive and finance capital, as discussed in chapter four. The change and restructuring of the relationship between capital and the state, especially during the 1990s was partially responsible for the liberalisation of the Greek auditing profession and audit reforms. Resource allocation and value distribution was negotiated between private capitalists and an extended state bureaucracy, hence the dominance of tax accounting and records, which continues to influence accounting practice.
3.3.3 The IFRSs era
The political and legal endorsement of IFRSs into EU law is directly applicable in all member states and transposes national law. The national representation in advisory and working groups, let alone on the IASB board, is limited to non-existent (based on evidence provided by a member of ELTE; the main Greek representative sent to international accounting working groups). The country’s influence on the standard-setting and decision process is assumed to be expressed through its representatives as a member of the European Bloc, although as discussed above, it is the interests of the more economically dominant European countries, and not Greece, that are privileged. Furthermore, the low participation of Greece, at least, during the first period of IFRSs adoption, was confirmed by Jorissen et al.
(2010), who investigated the geographical and stakeholder diversity in different countries’
formal participation in the due process of international accounting standard-setting in a longitudinal analysis over the period 2002-2006.
The state promoted the IFRSs as heralding a new era of economic purge, transparency of the corporate sector and efficient administration, along with wider economic structural and capitalist recovery attempts following the recession of 2000-2003. The state enforced a number of conservative strategies, such as privatisation of state enterprises, deregulation of the market, the limitation of state intervention and encouraged the internationalisation of capital with entrance into regional economic blocs. Market liberalisation advanced, a small number of state monopolies remained, public corporations were forced to modernise, and market regulation was delegated to independent bodies (Spanou, 2008). In addition, the financial system began transforming, shifting towards a market-based model emphasising capital markets instead of the banking sector.
IFRSs adoption was used in public discourse, as a means of restoring public trust in institutions and justifying capital restructurings. The General Secretary of the Ministry of Economy and Finance 2001-2004, Georgios Zanias, attributed the stock market bubble crisis
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at that time, to the international recession, ‘the excesses which were incorporated into the international capital markets and the accounting irregularities that served as an excuse’.
Regarding the early adoption of IFRSs, which was never realised, he promoted the implementation of IFRSs as reflecting the economic image of enterprises, increasing international comparability and attracting the interests of foreign investors (Aggelis, 2003).
Nikos Christodoulakis, Minister of Economy and Finance at the same period stated that the adoption of IAS will provide beneficial opportunities for listed companies and the Greek capital market while the standards were seen as part of the measures taken in order to enhance corporate transparency (Naftemporiki, 2002).
Later, during the wave of privatisations of Public Enterprises and Entities (in Greek DEKO) similar public announcements were made by governments, audit firms and the corporate sector with respect to the adoption and implementation of IFRSs by DEKO. Georgios Alogoskoufis, Minister of Economy and Finance from 2004 to 2009, together with the announcements of sweeping changes and privatisations in the field of DEKO, set as government priorities the improvement of the efficiency of the administration of the finances of state enterprises and the implementation of IFRSs (in.gr, 2007).
In order to support the transition to IFRSs and as a promoted solution to the scandals of the 2000s, the EU, following the example of the US, created an independent oversight system to report on accounting and audit practices. In 2003 (Law 3148/03), Greece instituted an independent oversight board (IOB), ELTE, which reports to the Minister of Finance and National Economy and is responsible for issues related to professional ethics, audit quality and guidance on the implementation of accounting standards and regulation. Caramanis (2010) employing a broad political economic framework, examined the establishment of ELTE and its operation, showing that local socio-political constrains might derail Europeanisation accounting reforms. Arrangements produced by the interaction of major local institutions, such as the state, the market and professional associations were occasional, fluid and inconsistent, postponing any required changes.