After the the crisis hit Greece, it became clear that the country's political leaders had forced the Greek statistics agency to produce false accounting. Instead of the actual numbers, the country reported a slew of figures that seemed to show that the country had eschewed its old spendthrift and incompetent ways and embraced the rectitude of the Maastricht economic criteria. In fact instead of a single figure deficit, the country has been running much bigger deficits and then lying about it. The effect of discovery was to send the country towards a serious crisis and to see a dramatic expansion of its debt yields... oops!
In fact the FT now reports that the positions is even worse than was feared. In fact, virtually all the Greek statistics are lies or meaningless. Not too surprisingly, the European institutions, from the Commission, to the ECB to Eurostat are livid.
The next steps now remain a bit of an open question. Obviously the new government in Athens is trying to show the appropriate level of contrition and is hurriedly revamping its entire statistical service as an independent organization that conforms to Eurostat rules. The Greek government is also going to have to inflict much more serious economic restructuring to reduce its now suddenly inflated deficit. Meanwhile the ECB is beginning to work out a plan that can sort out the mess without having to resort to the ultimate sanction of massive fines that might force the Greeks to exit the single currency.
The Greeks will be hurt by this, after all who now would believe a word they say? However it may also be that the Euro ends up being strengthened, provided that the word of at least the ECB can be relied upon.