Friday, February 19, 2010

Economy: Have large international banks helped Greece falsify real magnitude of its debts?

By Badriya Khan* Republished kind permission of IDN-InDepth NewsAnalysis

“It would be a disgrace if it turned out to be true that banks that already pushed us to the edge of the abyss were also party to falsifying Greek statistics.” - German Chancellor Angela Merkel

BARCELONA (IDN) – Have large international banks helped Greece -- and other countries -- falsify its official figures about the real magnitude of its debts?

The question has not been raised by an anti-capitalism activist, but by the leader of one of the major Western market-based liberal economies, who has also provided a shocking, implicit answer to it.

"It would be a disgrace if it turned out to be true that banks that already pushed us to the edge of the abyss were also party to falsifying Greek statistics," said German Chancellor Angela Merkel on February 17.

Merkel was probably referring to reports that large investment banks would have supplied the former conservative right-wing Greek government with derivative products that helped it hide part of its real debits.

The German newsweekly ‘Der Spiegel’, for instance, reported on February 8: “Goldman Sachs helped the Greek government to mask the true extent of its deficit with the help of a derivatives deal that legally circumvented the EU Maastricht deficit rules.”

At some point, it said, the so-called cross currency swaps will mature, and swell the country's already bloated deficit. “Creative accounting took priority when it came to totting up government debt.”

Greece's debt managers agreed a huge deal with the savvy bankers of U.S. investment bank Goldman Sachs at the start of 2002, according to the Spiegel.

“The deal involved so-called cross-currency swaps in which government debt issued in dollars and yen was swapped for euro debt for a certain period -- to be exchanged back into the original currencies at a later date.”

The U.S. bankers devised a special kind of swap with fictional exchange rates, Siegel reports.

“That enabled Greece to receive a far higher sum than the actual euro market value of 10 billion dollars or yen. In that way Goldman Sachs secretly arranged additional credit of up to $1 billion for the Greeks.”

This credit disguised as a swap didn't show up in the Greek debt statistics, wrote Spiegel. In previous years, Italy used a similar trick to mask its true debt with the help of a different U.S. bank. In 2002 the Greek deficit amounted to 1.2 percent of GDP (Gross Domestic Product).

“At some point Greece will have to pay up for its swap transactions, and that will impact its deficit. The bond maturities range between 10 and 15 years. Goldman Sachs charged a hefty commission for the deal and sold the swaps on to a Greek bank in 2005.”

The New York-based Goldman Sachs Group, Inc, which was founded in 1869, is a global investment banking and securities firm which engages in investment banking, securities services, investment management and other financial services primarily with institutional clients.

Other reports on such financial speculation refer to a deal between Greek government and Goldman Sachs in 2001, involving the exchange into euros of some 13,7 billion dollars in dollar and yen-denominated Greek government bonds. The deal used artificial exchange rate.

The Greek case may be just the tip of an iceberg of other huge speculative operations between other European Union and Western market-based economic powers.

European diplomatic sources, while not excluding the possibility that other governments may have resorted to this kind of speculation, have dismissed the possibility that the EU and its European Commission will want to dig deeply into it. (IDN-InDepthNews/18.02.2010)

*Badriya Khan is a veteran political analyst.

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