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The Group of States against Corruption was set up in 1999 by the Council of Europe. It has an unfortunate official acronym: GRECO – which rather brings one particular European state to mind.

But now that we’re on the subject of Greece, let’s take a look at an under-reported aspect of the Greek debt crisis, covered, in this instance, by George Georgiopoulos and Stephen Grey for Reuters:

  • “The two main political parties in Greece are facing their own financial crisis…
  • “Banking sources familiar with the issue say that conservative New Democracy and socialist Pasok now owe a combined 232 million euros to Greek banks. Some of the loans are going unpaid, those sources say. The debts far exceed the combined 37 million euros the parties received in state funding last year – a figure set to decline.”

232 million Euros is a truly staggering sum. It’s as if, in Britain, Labour and the Conservatives had a combined debt of around £1 billion (adjusting for population size).

You might wonder what the Greek banks were thinking of in lending so much money to these two parties. But, as it happens, there was a business case, of a sort. Greece, like most other EU states, has a system of public funding for political parties – a very generous system, you won’t be surprised to hear:

  • “Each year parties receive tax-free funding equal to 0.102 percent of annual state revenue, plus another 0.01 percent for "research and education" purposes. When national or European parliamentary elections take place an extra 0.022 percent of annual state revenue is handed out.”

With a seemingly secure revenue stream, it’s unsurprising that the banks were willing to lend against it. Except there’s a catch – the overall pot, you see, is divided up according to vote share:

  • “At present, funding is still based on the proportion of votes each party won in the June 2009 election. But in January funding will change to reflect votes cast in June 2012.
  • “At that election Pasok saw its share of the vote plunge from 43 percent to 12 percent, while New Democracy's share fell from 33 percent to 29 percent.”

Oh dear. Like so many dodgy investments across the Eurozone, this one isn’t working out as expected. However, the implications aren’t just financial:

  • “Leandros Rakintzis, Greece's independent inspector-general of public administration, believes the financial crunch the two big parties face is proof that Greece's political funding system is flawed. ‘This is all about the exchange of favors,’ he said. ‘These parties cannot pay the debt so it's a vicious circle in which they come to depend on the banks. It creates an interdependence of politicians and banks.’”

The example of Greece shows how public funding of political parties can create as many problems as it solves. However, if we in Britain do move towards a fully fledged system of taxpayer subsidies for political parties, then at the very least we should ban the recipients from borrowing against these ‘guaranteed’ revenues.

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