Wall St’s role in Greece
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.