Every forensic accountant knows Benford’s Law. It says that in any naturally occurring set of figures, the frequency of each digit’s appearance is reasonably predictable, rather than random. Look at the surface areas of the world’s lakes, or the heights of mountains, and the number 1 is the most frequent first digit, with the others in declining frequency to number 9.

This is counter-intuitive. Few would-be fraudsters are aware of it as they construct what they consider to be sets of plausible numbers in their accounts. Not just individuals, either. Here’s the German Economic Review (HT Bond Vigilantes) of last April:

In the European Union (EU), there is pressure to comply with the Stability and Growth Pact criteria. Therefore, like firms, governments might try to make their economic situation seem better. In this paper, we use a Benford test to investigate the quality of macroeconomic data relevant to the deficit criteria reported to Eurostat by the EU member states. We find that the data reported by Greece shows the greatest deviation from Benford’s law among all euro states.

Oh dear. We knew the Greeks were being economical with the actualite but there’s quite a difference between wishful thinking and inventing the numbers. That’s called fraud.

Now the game’s up, regardless of what happens in the country’s politics. The truth is that Greece cannot live with the euro, and will have to default and devalue. If all the parties go into a general election in denial, then the process will be even longer and more painful than it’s already doomed to be. The next Greek administration must strike a deal to allow devaluation while remaining in the EU – preferably before next year’s holiday season. The result would be a rush of tourists from the north, bringing jobs and at least the possibility of public sector reform. Just don’t expect to learn the whole, Benford’s Law compliant truth. That would be too painful to bear.