Greece to Northern EU: Our Debt, Your Problem

[skyson]

Re: Greece to Northern EU: Our Debt, Your Problem

In a SPIEGEL interview, European Central Bank Chief Economist Jürgen Stark discusses the threat of a Greek bankruptcy, disruption in the euro zone and the growing problem of excessive national debts in countries that have adopted Europe's common currency.

http://www.spiegel.de/international/...677544,00.html

SPIEGEL: In the United States, the Fed is doing plenty of rescuing. It simply prints money and buys treasury bonds.

Stark: We cannot take that approach. And I am glad that we are not permitted to do so. Our mission is price stability.

SPIEGEL: You are maneuvering yourself around an answer to the main question: What happens if Greece doesn't make it?

Stark: I do not think that is the most important question, but I will answer it with a clear statement: The country must and will make it.

What dose Mr. Stark mean when he says greece "must and will make it", and simultaneously stating the US style printing is not the solution? There will be no default, and no printed euros. Then, the richer countries simply pay for the debts?

At the mean time Stiglitz Says U.S., U.K. Default Is ‘Absurd’ Investor Notion. You still deserve "Aaa" rating, even you hyper-inflate (or hyper-devaluate).:eek::eek:

Nobel laureate Joseph E. Stiglitz said the prospect of a default by the U.S. or the U.K. is an “absurd” notion constructed in financial markets.

Both nations “deserve to keep the Aaa rating” and “the likelihood of a default is so small, particularly in the U.S. because all we do is print money to pay it back,” he said in response to questions after a speech in London yesterday. “The notion of a default is so absurd, it’s another reflection of the absurdities in the financial markets.”

[big67]

Re: Greece to Northern EU: Our Debt, Your Problem

Another Duh moment for the Greek government. News like this one are going to increase the political pressure against a bailout: how do you explain this to the people? and Goldman to be banned from eurozone trading? and I hope this will not "extend to other EU countries".

http://www.bloomberg.com/apps/news?p...XSLtlN9E&pos=1

Goldman Sachs, Greece Didn’t Disclose Swap, Investors ‘Fooled’


Feb. 17 (Bloomberg) -- Goldman Sachs Group Inc. managed $15 billion of bond sales for Greece after arranging a currency swap that allowed the government to hide the extent of its deficit.
No mention was made of the swap in sales documents for the securities in at least six of the 10 sales the bank arranged for Greece since the transaction, according to a review of the prospectuses by Bloomberg. The New York-based firm helped Greece raise $1 billion of off-balance-sheet funding in 2002 through the swap, which European Union regulators said they knew nothing about until recent days.
Failing to disclose the swap may have allowed Goldman, a co-lead manager on many of the sales, other underwriters and Greece to get a better price for the securities, said Bill Blain, co-head of fixed income at Matrix Corporate Capital LLP, a London-based broker and fund manager.
“The price of bonds should reflect the reality of Greece’s finances,” Blain said. “If a bank was selling them to investors on the basis of publicly available information, and they were aware that information was incorrect, then investors have been fooled.”
Michael DuVally, a spokesman at Goldman Sachs in New York, declined to comment.
Legal ‘At the Time’
Goldman Sachs, Wall Street’s most profitable securities firm, is being criticized by European politicians including Germany’s ruling Christian Democrats, who have questioned whether the firm helped Greece hide its deficit to comply with the currency’s membership criteria. Greece is also being faulted by fellow euro-region countries for failing to disclose the swaps to EU regulators.
The swaps used by Greece to manage debt were “at the time legal,” Greek Finance Minister George Papaconstantinou said on Feb. 15. The government doesn’t use the swaps now, he said.
Eurostat, the EU’s statistics office, this week ordered Greece to hand over information on the swaps transactions by the end of this week in an investigation that may extend to other EU countries.
Goldman Sachs earned about 735 million euros ($1 billion) underwriting Greek government bonds since 2002, data compiled by Bloomberg show. Goldman Sachs underwrote 10 bond sales. Prospectuses for six of them, obtained by Bloomberg, contain no mention of the swaps. The other four couldn’t be obtained.
‘Fear the Worst’
The yield on Greek 10-year government bonds jumped to as much as 7.2 percent on Jan. 28 amid the worst crisis in the euro’s 11-year history. The premium, or spread, investors demand to hold Greek 10-year notes instead of German bunds, Europe’s benchmark government securities, widened yesterday by 18 basis points to 323 basis points.
The spread reached 396 basis points last month, the most since the year before the euro’s debut in 1999, compared with an average of 57 basis points in the past decade. A basis point is 0.01 percentage point.
“When people start to fear that the numbers aren’t accurate, they fear the worst,” said Simon Johnson, a former International Monetary Fund chief economist who is now a professor at the Massachusetts Institute of Technology’s Sloan School of Management in Cambridge, Massachusetts.
No ‘Smoking Gun’
Goldman could face legal liability “if it could be established that they were knowingly hiding risk, and therefore knew or had reason to know that the bond disclosure documents were misleading,” said Thomas Hazen, a law professor at the University of North Carolina at Chapel Hill. “But that would be a tough hill to climb, in terms of burden of proof. There’d have to be some sort of smoking-gun memo.”
The swap enabled Greece to improve its budget and deficit and meet a target needed to remain within the region’s single currency. Knowledge of their existence may have changed investors’ perception of the risk associated with Greece, and the price they may have been willing to pay for the country’s securities.
“From what we know, this is an egregious example of a conflict of interest” for Goldman Sachs, MIT’s Johnson said. “Even if the deal had been authorized, it doesn’t let them off the hook.”
A Greek government inquiry this month identified a series of swaps agreements with securities firms that allowed the country to hide its mounting deficit. Greece used the swaps to defer interest payments, causing “long-term damage” to the Greek state, according to the Feb. 1 document, commissioned by the Finance Ministry.
Cross-Currency Swap
European Union officials said this week they only recently became aware of the transaction with Goldman. The swaps don’t necessarily break EU rules, European Commission spokesman Amadeu Altafaj told reporters in Brussels on Feb. 15.
The transaction with Goldman consisted of a cross-currency swap of about $10 billion of debt issued by Greece in dollars and yen, according to Christoforos Sardelis, head of Greece’s Public Debt Management Agency at the time.
That was swapped into euros using a historical exchange rate, a mechanism that implied a reduction in debt and generated about $1 billion in an up-front payment from Goldman to Greece, Sardelis said. He declined to give specifics on how the swap affected the country’s deficit or debt.
European politicians such as Luxembourg Treasury Minister Jean-Claude Juncker this week criticized Goldman Sachs for arranging the Greek swap and are pressing the firm and Greece for more disclosure. Chancellor Angela Merkel’s Christian Democrats aim to push for new rules that will force euro-region nations and banks to disclose bond swaps that have an impact on public finances, financial affairs spokesman Michael Meister said.
“Investment banks are guilty of being part of a wider collusion that fudged the numbers to make the euro look like a working currency union,” said Matrix’s Blain. “The bottom line is foreign exchange and bond investors bought something sellers knew not to be the case.”
To contact the reporter on this story: Elisa Martinuzzi in Milan at emartinuzzi@bloomberg.net
Last Updated: February 16, 2010 19:05 EST

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[big67]

Re: Greece to Northern EU: Our Debt, Your Problem

To add some fuel to fire:
list of prime ministers in Greece : in 2002 the current ruling party Pasok was at the helm... not easy for Papandreou to call off this one

http://en.wikipedia.org/wiki/List_of....80.93today.29

Simitis and fake budgets:
http://en.wikipedia.org/wiki/Kostas_Simitis
During the period of his governance, official data presented inflation as having decreased from 15% to 3%, public deficits diminished from 14% to 3%, GDP increasing at an annual average of 4% and factual labor incomes having increased at a rate of 3% per year. However, the macroeconomic data presented by Simitis' government were called into question by an audit performed by the successor government of New Democracy in 2004. Eurostat concluded in 2006 that the public deficit of the Greek economy amounted to 6,1% in 2003, more than double the percentage presented by Simitis' government.[1] The results of the audit concluded that the PASOK administration used different accounting methods, especially for calculating the military expenses during its term. The government of New Democracy used the revised data as a means to criticize the previous government for incompetent economic policy and a falsification of an economic indicator, namely the public deficit, which among other criteria was used as a basis on which Greece was accepted into the Eurozone. PASOK contested the accusations and claimed that 2006 Eurostat changes to the system of defense expenditure calculation [2] legitimized the practices of the Simitis government. New Democracy responded that the defense expenditures covered by those changes constituted only a small part of much more substantial expenditures that were fraudulently concealed by the PASOK government. Whether Simitis' government conducted any unconventional handling of Greek fiscal data continues to be a hotly contested issue between the two political parties. A major issue during Simitis' tenure concerned corruption, which has become endemic in Greek public life. Simitis rejected New Democracy's bills for accountability and transparency with regards to governmental expenditure and decisions [3], and New Democracy leader Kostas Karamanlis accused Simitis during a parliamentary plenum of being an "archpriest of cronyism"...

[Serge_Tomiko]

Re: Greece to Northern EU: Our Debt, Your Problem

Greece and the rest of the PIIGS are just an excuse to push Germany around.

If there is one thing we can glean from history over the past 2,500 years - this is something that always ends badly for those doing the pushing.