Greece to go bankrupt?

[kronic]

To be fair, the Greeks manipulating statistics is one thing, the other one is that everybody else looked aside. I cannot believe nobody knew about what was going on. I'm convinced that Greece was allowed to join against better knowledge. And the 60 % threshold for total government debt didn't seem to be important as not only Greece but also Italy and Belgium were far away from having a chance to push debt under the limit. You may have heard about this joke: Why was Greece allowed to join? To make the Italians look more honest.

An interesting sidenote: the current president of the Italian central bank, Mario Draghi, was Goldman Sachs' vice chairman and responsible for GS' deals with governments at the time when GS helped Greece with its manipulations. Draghi is one of the main competitors for Trichet's succession as president of the ECB. He surely is the right guy for the Italian central bank or the ECB...

 

[Takhisis]

Surprisingly, I'm not surprised at this.

 

[innonimatu]

An interesting sidenote: the current president of the Italian central bank, Mario Draghi, was Goldman Sachs' vice chairman and responsible for GS' deals with governments at the time when GS helped Greece with its manipulations. Draghi is one of the main competitors for Trichet's succession as president of the ECB. He surely is the right guy for the Italian central bank or the ECB...

That Draghi certainly is one scumbag. But he's not the only european central banker involved with GS. Not by far.

 

[innonimatu]

After reading this article, I really feel like selling Greece back to Turks and using the money to repay their debts to the rest of the world.

Trashing the Euro? But that's good for Europe, all governments wanted the euro to lose value against other currencies. They'll all playing the "recovery through exports" game. I'm now convinced that the whole Greek story has been allowed to drag on because of this.
Even Estonia should benefit somewhat - or is the currency there not pegged to the euro?

 

[kronic]

That Draghi certainly is one scumbag. But he's not the only european central banker involved with GS. Not by far.

It keeps getting better everyday though:

Head Of Greek Debt Office Replaced By Former Goldman Investment Banker

and:

Yow! Greece May Have $75 Billion More Of Debt Hidden Off Its Books


--------------

Meanwhile, the EU is said to have put together a package for Greece, at least according to the German magazine Der Spiegel. It involves €20-25 billion in loans and guarantees. Around 1/5 is said to be given by Germany. It is also said that the German ministery of finance people believe that additional measures may be necessary in the mid-term to support a number of Euro countries. They also want to elaborate on a government default procedure for Eurozone members.

If this report is true, Greece and the banks have won this game. Greece will effictively have to cut less than without help and the banks will be bailed out. I cannot say how much I hate banks these days...

 

[Takhisis]

$75 Billion? Pah. You know, it could be even worse.

 

[kronic]

More news from Germany's banks, more precisely from Hypo Real Estate, that formerly third largest German bank that had to be nationalised. It turns out that HRE bought 50 % of its Greek government bonds in 2009 ... after its nationalisation. This really looks to me as if the German government engineered a hidden bailout for Greece...and that makes me angry...

 

[really]

Or that someone in Hypo saw the high yields and said - that is just what we need to recover the public money invested in us.

 

[Takhisis]

Hmmm... this is all very fishy... as usual, the big corporations will profit from this... they screq up, then they're bailed out. TBTFs should be brought down.

 

[Mise]

More news from Germany's banks, more precisely from Hypo Real Estate, that formerly third largest German bank that had to be nationalised. It turns out that HRE bought 50 % of its Greek government bonds in 2009 ... after its nationalisation. This really looks to me as if the German government engineered a hidden bailout for Greece...and that makes me angry...

You can't call that a bailout unless you know what % of Greek bonds were bought by HRE and other German nationalised banks. 50% of HRE's Greek gov't bond holdings may only be 1% of all Greek bonds issued in 2009. In addition to what Really said, Greek bonds in 2009 were exchangeable for cash with the ECB. Would have been a decent way to sure up their balance sheet.

 

[dutchfire]

I saw the Greek prime minister on the Andrew Marr show today, he looked quite convincing to be honest. Gave me some more sympathy for the situation the Greeks are in.

 

[innonimatu]

It looks like the deals between Greece and GS has always been known: here is a news piece from 2003 about one of those!

With the help of Goldman Sachs, Greece has been using giant swaps deals to ensure its national debt ratios meet EU targets. But these deals are likely to prove controversial. By Nicholas Dunbar
[...]
It is now widely known that since 1996, Italy’s Treasury has regularly used swaps transactions to optically reduce its publicly reported debt and deficit ratios. Such trades remain controversial, and were the subject of fierce debate in late 2001, when Italian academic Gustavo Piga published a paper accusing eurozone countries of ‘window dressing’ their public accounts using derivatives (Risk January 2002, page 17).

Now, Italy has been joined by the Hellenic Republic of Greece, as evidence emerges of a remarkable deal between the public debt division of Greece’s finance ministry and the investment bank Goldman Sachs. The deal is not only likely to reopen an old debate on public accounting for derivatives, but also sheds light on the way banks charge clients for taking credit and market risk exposure.

[...]

The transactions agreed between the Greek public debt division and Goldman Sachs involved cross-currency swaps linked to Greece’s outstanding yen and dollar debt. Cross-currency swaps were among the earliest over-the-counter derivatives contracts to be traded, and have a perfectly routine purpose in debt management, namely to transform the currency of an obligation.
[...]
However, according to sources, the cross-currency swaps transacted by Goldman for Greece’s public debt division were ‘off-market’ – the spot exchange rate was not used for re-denominating the notional of the foreign currency debt. Instead, a weaker level of euro versus dollar or yen was used in the contracts, resulting in a mismatch between the domestic and foreign currency swap notionals. The effect of this was to create an upfront payment by Goldman to Greece at inception, and an increased stream of interest payments to Greece during the lifetime of the swap. Goldman would recoup these non-standard cashflows at maturity, receiving a large ‘balloon’ cash payment from Greece.
[...]
Although the overall deal is believed to have consisted of three or four individual transactions or tranches, according to sources, the total cross-currency swap notional was approximately $10 billion, with tenors ranging from 15 to 20 years. While the size of upfront payment to Greece’s public debt division is not clear, it seems the total credit risk incurred by Goldman Sachs was roughly $1 billion. Effectively, Goldman Sachs was extending a long-dated illiquid loan to its client.

Goldman Sachs is known for its conservative approach to credit risk, and chose to hedge its exposure to Greece by immediately placing the risk with a well-known investor in sovereign credit: Frankfurt-based Deutsche Pfandbriefe Bank (Depfa). According to sources, Depfa entered into a credit default swap with Goldman Sachs, selling $1 billion of protection on Greece for up to 20 years. Depfa declined to comment.

Details have also emerged of the way Greece’s public debt division was charged for the transaction. According to market sources, the total charge was approximately $200 million. This charge can be broken down into several components. First, Greece was charged for the credit risk in the transaction. Long-dated Greek government bonds were trading at a spread of 30 basis points in 2002. A billion-dollar investment in such bonds, purchased in asset swap form and held for 20 years, would yield about $60 million. According to Risk’s sources, Depfa demanded a substantial premium for taking on what was in effect an illiquid, privately placed loan.

[...]But why did the large negative market value of the swaps not appear on the liability side of Greece’s balance sheet?

The answer can be found in ESA95, a 243-page manual on government deficit and debt accounting, published by the European Commission and Eurostat in 2002. As revealed by Piga, the drafting of ESA95’s section on derivatives was the subject of fierce arguments between the government statisticians and debt managers of certain eurozone countries.

The statisticians wanted derivatives-related cashflows to be treated as financial transactions, with no effect on deficit or interest costs, and with the derivatives’ current market value stated as an asset or liability. The debt managers opposed this, insisting on having the freedom to use derivatives to adjust deficit ratios. The published version of ESA95 reflects the victory of the debt managers in this argument with a series of last-minute amendments.

 

[Gabryel Karolin]

From SVT (Swedish state television and largest news provider) today. Translated by me. Anders Borg was the finance minister during Swedens presidency which recently ended.

I really hate Greece atm. Kick them out of everything, I want nothing to do with them. They deserve nothing but our contempt.

"Greek ministers lied straight to my face"

The Greek governments crisis-package to halt the galloping budget deficit and save the currency union causes strikes and street-riots. In tonights Agenda [a news tv-show] finance minister Anders Borg reacts to reports that Greek government agencies, in co-operation with major US banks, have knowingly lied to the EU.

The first of januari 2002 Greece, against all odds, managed to meet EU demands of healthy state finances and take a place in the currency union. Two years later the EUs bureau of statistics showed that Greece had provided false information. The budget deficit had been considerably higher than the Greeks had previously stated.

During the remainder of the 00's the EU found Greek statistics incorrect on a further five occasions and in October 2009 the bomb exploded: the Greek budget deficit would be almost four times higher than earlier stated.

Now the country is threatened by economic collapse and last week the Greek minister of finance presented his crisis plan to the other EU ministers of finance.

- I've had three Greek colleagues. They have all solemnly declared, that now, everything is in order with the finances. They have either been deceived themselves or they have been lying straight to our faces, Anders Borg says.

Knowingly cheating. One way to cheat was last year to remove part of the costs of healthcare from the budget, away from the EUs watching eye. According to the NYT Greece has also had help from major American banks to receive further loans by selling out national assets.

Among other things the future fees from Athens airport and future national lottery incomes were sold. In return the banks paid billions of euros which wasn't added to the Greek national debt.

Lousy morals. And as late as this autumn the bankn Goldman-Sachs visited Athens and suggested a financial solution which would have pushed healthcare-debts into the future.

This shows that the morals in some of these banks are at least as rotten as that of the Greek government, says Anders Borg.
- Its incredibly upsetting, it would be repulsing if this information proved true.

 

[kronic]

At least you're not part of the Eurozone.

 

[Gabryel Karolin]

At least you're not part of the Eurozone.

So that means out money won't be used, right?

 

[kronic]

This whole story is really fascinating.

Next chapter: Is AIG the main CDS insurer for Greek government debt?

 

[Winner]

So that means out money won't be used, right?

Yup That's one of the benefits of not being in the Eurozone right now Our finance minister commented that we won't be giving them a single euro (since we've already lent some € 200 million to Latvia. I hope that they at least let us win easily in the upcoming hockey match in Vancouver ).

 

[Lillefix]

200 euros!!! You guys are so generous.

 

[Winner]

200 euros!!! You guys are so generous.

We're a poor Eastern European hellhole, what did you expect?

(corrected )

 

[kronic]

The media war is on, it seems.

The Greeks are upset about the title page of the current issue of the German magazine "Focus".

The title translates to "cheaters in the Euro family".

This is the Greek newspaper Eleftheros Typos' response:

The picture depicts the Statue of Victoria on top of Berlin's Victory coloumn with a swastika.

More importantly, this is what the Greek deputy prime minister has to say:

Pangalos criticised Germany’s attitude towards the Greek crisis, saying Athens had never received compensation for the economic impact of the Nazi occupation during World War Two.

“They took away the Greek gold that was at the Bank of Greece, they took away the Greek money and they never gave it back. This is an issue that has to be faced sometime in the future,” he said.

…

“I don’t say they have to give back the money necessarily but they have at least to say ‘thanks’,” he said. “And they shouldn’t complain so much about stealing and not being very specific about economic dealings.”

Or we could just tell them to feck off.

http://ftalphaville.ft.com/blog/2010/02/24/157941/italys-worse-and-the-germans-stole-our-gold/