Wall St’s role in Greece

Townsville Bulletin - - OPINION -

AN ar­ti­cle writ­ten by Robert B. Re­ich, ( Chan­cel­lor’s Pro­fes­sor of Public Pol­icy at the Univer­sity of Cal­i­for­nia) cap­tures the Greek cri­sis from its begin­nings ... and yes, it should be a warn­ing!

The cri­sis was ex­ac­er­bated years ago (“Greek plight a warn­ing” Townsville Bul­letin 22 July, 2015) by a deal with Gold­man Sachs, en­gi­neered by Gold­man’s cur­rent CEO, Lloyd Blank­fein.

Blank­fein and his team helped Greece hide the true ex­tent of its debt, and in the process al­most dou­bled it.

In 2001, Greece was look­ing to dis­guise its mount­ing fi­nan­cial trou­bles.

The Maas­tricht Treaty re­quired all eu­ro­zone mem­ber states to show im­prove­ment in their public fi­nances.

Gold­man Sachs came to the res­cue, ar­rang­ing a se­cret loan of 2.8 bil­lion eu­ros for Greece.

It was dis­guised as an off- the­books “cross- cur­rency swap”– a trans­ac­tion in which Greece’s for­eign- cur­rency debt was con­verted into a do­mes­tic- cur­rency obli­ga­tion us­ing a fic­ti­tious mar­ket ex­change rate.

The re­sult – about 2 per cent of Greece’s debt mag­i­cally disap- peared from its na­tional ac­counts.

Christo­foros Sardelis, then head of Greece’s Public Debt Man­age­ment Agency, later de­scribed the deal as “a very sexy story be­tween two sin­ners.”

For its ser­vices, ( ac­cord­ing to Spy­ros Pa­pan­i­co­laou, who took over from Sardelis in 2005) Gold­man re­ceived a whop­ping 600 mil­lion eu­ros ( US$ 793 mil­lion).

That came to about 12 per cent of Gold­man’s rev­enue from its gi­ant trad­ing and prin­ci­pal- in­vest­ments unit in 2001 – which posted record sales that year. The unit was run by Blank­fein.

Then the deal turned sour re­sult­ing in a big loss for Greece be­cause of the for­mula Gold­man had used to com­pute the coun­try’s debt re­pay­ments un­der the swap.

By 2005, Greece owed al­most dou­ble what it had put into the deal, push­ing its off- the- books debt from 2.8 bil­lion eu­ros to 5.1 bil­lion.

In 2005, the deal was re­struc­tured and that 5.1 bil­lion eu­ros in debt locked in.

Per­haps not in­ci­den­tally, Mario Draghi, ( now head of the Euro­pean Cen­tral Bank) was then man­ag­ing di­rec­tor of Gold­man’s in­ter­na­tional di­vi­sion.

Greece wasn’t the only sin­ner. Un­til 2008, Euro­pean Union ac­count­ing rules al­lowed mem­ber na­tions to man­age their debt with so- called off- mar­ket rates in swaps.

In the late 1990s, JP Mor­gan en­abled Italy to hide its debt by swap­ping cur­rency at a favourable ex­change rate, thereby com­mit­ting Italy to fu­ture pay­ments that didn’t ap­pear on its na­tional ac­counts as fu­ture li­a­bil­i­ties.

Un­doubt­edly, Greece suf­fers from years of cor­rup­tion and tax avoid­ance by its wealthy but Gold­man cer­tainly padded its prof­its by lever­ag­ing Greece to the hilt and other Wall Street banks did the same. RON WAD­FORTH,


CRI­SIS COALI­TION: Protesters march, hold­ing ban­ners and flags in front of the Greek par­lia­ment in Athens.

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