The Greek end of Wall Street ?

COMMENTARY
7:28 AM, 16 Feb 2010| More
Karen Maley
The Greek end of Wall Street
RECENT MALEY
Australia's twin fates Feb 17
The Greek end of Wall Street Feb 16
The great property fire sale Feb 15
No way out for Greece Feb 15
Next on the chopping block Feb 12

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The Greek crisis has taken on a decidedly sub-prime feel following revelations that Wall Street investment banks earned hundreds of millions of dollars over the past decade from transactions that helped the country hide billions of dollars of debt.

The New York Times reported on the weekend that Wall Street tactics had played their part in worsening Greece’s financial position and undermining the euro by helping European governments to hide their mounting debts.

The reports said that in 2001, shortly after Greece joined Europe’s monetary union, Goldman Sachs helped the government quietly raise billions of dollars. Athens was able to continue its free-spending ways while complying with the strict EU deficit regime, because the transaction was treated as a currency trade rather than a loan.

Apparently, Greece wasn’t the only EU government to use these types of deals, where a government would raise cash up front in exchange for handing over the rights to a future income stream. They were also popular in Italy, Spain and Portugal.

Greece has defended its use of financial derivatives, saying they were legal at the time.

The problem for Greece is that it now finds itself under extreme pressure to cut its budget deficit by slashing spending and boosting its revenues.

But the result of these past deals with Wall Street banks is that the Greek government has already handed over the rights to big chunks of its revenues, such as airport fees and lottery proceeds, for years to come.

And, of course, the revelation that Greece participated in these Wall Street transactions has further undermined its credibility within the EU. Greece had already been criticised by the EU for supplying incorrect information about its budget situation in the past.

But in the wake of The New York Times report, the EU has asked the Greek government to provide information about how it accounted for these currency swap deals.

The EU is currently engaged in a good deal of self-recrimination for not paying closer attention to the true state of Greece’s dismal public finances.

Greece remains the main subject of discussion for EU finance ministers currently meeting in Brussels. But markets have now given up hope that the meetings will result in concrete bail-out plan for Greece.

After meeting in Brussels last week, EU political heads pledged to support Greece, but they failed to detail what measures they might adopt to rescue the debt-burdened country.

At their meeting, EU finance ministers resolved to keep Greece under unprecedented surveillance as the country attempted to slash its budget deficit from its present level of 13 per cent of GDP to less than 3 per cent by 2012.

There are also reports that the EU finance ministers will require Greece to make deeper budget cuts, and to lift its taxes if its current plans for cleaning up its budget are seen as insufficient.

EU finance ministers have also discussed the type of financial assistance they could theoretically provide to Greece, such as direct loans, guarantees of the country’s debt, and purchasing Greek government bonds.

Meanwhile, markets have been further unnerved by reports out of Dubai that creditors to the troubled Dubai World could be facing hefty losses on their $US22 billion in loans.

Last November, markets went into a tail-spin when Dubai World announced it would be seeking a six-month moratorium on its debt.

Dubai World is not expected to come up with a formal debt restructuring agreement until March or April.

However, reports suggest that the debt restructuring could see creditors receiving only 60 cents in the dollar for their loans, and even this would be repaid over a period of seven years.

Source: http://www.businessspectator.com.au/...cument&src=kgb

its those tentacles from the GFC still reaching out when they're least expected.
Didnt anyone wonder how all these , um how do I say it, 2nd tier economies suddenly managed to conform to those strict EU requirements for entry. I mean from a currency stability perspective how would you compare the Deutschmark against the Drachma??? But now because they all use the Euro they're equally stable yeh right. Greek bonds were actually rated similarly to German Bonds! Sure it was the place of the birth of Western culture but I wouldnt have thought Standard and Poors would care too much about that.

Hmm I have heard from my uncle who does forex trading that the EU debt was going to cause the euro dollar to collapse. He advised I should be getting into position for shorting the EUR. This is an interesting piece of information in light of his comments.