Addressing the House on Friday, the Prime Minister touched on national affairs. Georg-e Papandreou underlined that the only dispute with Ankara to be resolved is the continental self. Communist leader Aleka Papariga expressed her concerns over Greece’s national affairs, arguing that after the Imia incidence, NATO ratifies the disputes raised by Turkey.
Legal processes for approving aid to Greece, should it be needed, are progressing satisfactorily in all eurozone member states, Eurogroup President and Luxembourg Finance Minister Jean-Claude Juncker said on Friday.
Greece’s problems deepened on both sides of the Atlantic as the Federal Reserve disclosed it was investigating Goldman Sachs and other banks that helped the country mask its debts, and investors grew increasingly leery of lending any more money to a nation flirting with default.
Wall Street’s role in the run-up to the debt crisis has generated criticism and calls for an inquiry from European leaders. The Fed examination is the first time American regulators will examine the highly profitable if little-known business of supplying custom-made financial instruments to strapped countries on the Continent.
While Greece’s economic troubles have transfixed world markets for weeks, its problems have snowballed in recent days as workers went to the picket lines to protest budget cuts and the government struggled to raise cash to cover what is Europe’s largest budget deficit. Last year, Greece’s deficit equaled 12.7 percent of gross domestic product.
On Thursday, the Moody’s ratings agency joined Standard & Poor’s in warning that it might downgrade Greek government bonds, a move that would increase the premium Athens must pay to borrow. The move comes at a precarious time for Greece, which must raise 25 billion euros ($34 billion) over the next few months to avoid a sovereign default that officials fear could cause the finances of other weak European economies to collapse.
Greece’s economic troubles have transfixed markets for weeks, and recently, workers there went on strike to protest budget cuts.
In a sign of the challenges their nation faces, Greek officials also called off a planned trip to the United States and Asia aimed at interesting new investors in its bonds because of a lack of demand, according to an investment banker who was briefed on the government’s fund-raising strategy.
The European Union has said it would come to Greece’s aid only if it develops a plan to reduce its deficit by March 16, further ratcheting up the pressure.
“Even if they bring the deficit to zero, with interest rates at 6.5 percent and a growth rate of zero at best, Greece’s debt ratio remains on an explosive path,” said Miranda Xafa, a former executive board member at the International Monetary Fund. “I just don’t think they can raise funds from the market now.”
Greece has suffered from large deficits for years, and until now it seemed as if big banks would always be there to bail it out. As far back as 2000 and 2001, Goldman helped Athens quietly borrow billions to mask its poor finances by creating derivatives that essentially transformed loans into currency trades that Greece did not have to disclose under European rules.
Ben S. Bernanke, the Federal Reserve chairman, told Congress Thursday that the Fed was “looking into a number of questions relating to Goldman Sachs and other companies and their derivatives arrangements with Greece.”
Mr. Bernanke said the Securities and Exchange Commission was also concerned about how derivatives — financial instruments that are largely unregulated and do not trade on public exchanges — have contributed to Greece’s problems. “Obviously, using these instruments in a way that intentionally destabilizes a company or a country is counterproductive,” he said.
The S.E.C., in a statement, said that it could “neither confirm nor deny the existence of an investigation,” but added that it was cooperating with United States and international regulators in examining “potential abuses and destabilizing effects related to the use of credit-default swaps and other opaque financial products and practices.”
Goldman declined to comment, citing its policy of not addressing legal or regulatory matters. But in a Feb. 21 presentation, Goldman said, “The Greek government has stated (and we agree) that these transactions were consistent with the Eurostat principles governing their use and application at the time.” Eurostat is the European Union’s statistics agency.
Goldman is not the only bank that supplied derivatives designed to lower deficits. In the late 1990s, JPMorgan Chase helped Italy reduce its budget gap by swapping currency at a favorable exchange rate. In return, Italy committed to future payments that were not booked as liabilities.
A spokeswoman for JPMorgan said that Italy disclosed all of the deals to Eurostat.
Senator Christopher J. Dodd, Democrat of Connecticut and the chairman of the Senate Banking Committee, also took aim at credit-default swaps, which allow banks and hedge funds to wager on whether a company or country might default.
Critics say the swaps have contributed to Greece’s problems and increased the odds of a financial collapse.
“We have a situation in which major financial institutions are amplifying a public crisis for private gain,” he said.
The Fed inquiry was begun about three weeks ago, according to an official involved in the investigation who was not authorized to comment publicly. Fed examiners are focusing on whether Goldman and other banks complied with guidance the Fed issued in 2007 outlining how to manage the risk of complex financial vehicles. The investigation is still in its early stages, he added, as officials sift through records detailing how the derivatives were created, what compliance procedures were followed and what internal analysis was performed. The Fed is also looking at whether Wall Street made additional financial arrangements for Greece that have not been disclosed.
Growing concern over these transactions have made investors more doubtful than ever about the government’s ability to quickly secure tens of billions of euros in new financing it needs to avert default. Greece faces a critical test next week, when it will try to raise about 3 billion euros ($4 billion), through an issue of 10-year bonds.
But with threats of a downgrade to its sovereign debt looming, investors say Greece would need to pay a whopping 7 percent interest rate just to get people to buy. That is almost a percentage point more than the rate investors received in the previous Greek bond sale, in January, and a full 3 percentage points more than Greece’s borrowing cost before the current crisis.
A spokeswoman for the Greek Finance Ministry did not respond to a request for a comment.
The rise in investor skepticism has led Greece to adopt a new financing strategy. Instead of selling debt through public auctions, where the danger of a failed offering could further unnerve markets, it has gone directly to institutional investors, sounding them out in one-on-one meetings, mostly in London.
Bankers and analysts in Athens say there is a debate within the Finance Ministry as to whether the government should go to the market now, or wait until a new menu of changes — like more taxes and further public sector wage cuts — is announced, in the hope that such measures will result in lower financing costs.
But a more dire view is already taking hold, according to some bankers, as investors fret that Greece may simply not be able to cover 20 billion euros of debt coming due in April and May, and 53 billion euros for all of the year. It seems unlikely that such a quantity can be raised from investors — many of them conservative pension funds and insurance companies that are already nursing losses from the 8-billion-euro Greek bond issue in January that was hit by the recent market downturn.
On the Road to Destruction? Athens, Greece during time of financial crisis.
May 9
Posted by Vicki S. Nikolaidis
Athens, Greece Injured from fire-bombed back
Commentary from www.ekathimerini.com May 6, 2010
Can a society self-destruct? Yes, it most definitely can and the way Greece is headed right now it is a very real possibility that it will.
Here we have a state and a society that allow a handful of nihilistic hooligans to torch the city and cause the deaths of three citizens.
We have the leadership of the country’s second biggest political party opting for a populist line of rhetoric and failing to answer a simple question on whether or not it will support the government’s economic recovery plan.
We see a society that is mad, and justifiably so, and we see it going down an ill-advised path.
Then we see the government, caught in the grips of panic, contributing to the populist fever and pouring more oil over the fire.
Greece is at the most crucial point of its post-1974 history and whether we destroy ourselves or not, whether we go bankrupt or not, depends not just on our political leadership, but also on every single one of us individually and collectively.
Thoughts from Vicki
I wanted to share the above commentary from the English language portion of the Greek newspaper, ekathimerini.com (Kathimerini), because of the drama with which it is written as well as some of the cultural points it brings up which we can explore together.
15 hooligans who label themselves anarchists in order to give themselves feelings of justification for their acts of vandalism . . . and now murder. . . were filmed by security cameras attacking a bank.
In the USA, citizens have shown up at talks given by President Obama with guns casually slung over their shoulders. In the streets of Athens during times of protest the unions of public worker unions find themselves next to a few young men and women with kerchief-covered faces and backpacks stuffed with Molotov cocktail ingredients.
A CNN International reporter interviewed different segments of the protestors on the street but avoided the self-proclaimed anarchists. I’m sure they seem quite threatening particularly to Americans. Unfortunately, when questioned, the “anarchists” are not able to speak logically about their “movement” or what they are trying to accomplish by their actions. There seems to be an attitude that protest is the means and the end.
The police are in the same position as others in dealing with the austerity measures yet they are they receive the primary attacks from the anarchists.
ATMs (Automatic Teller Machines) at banks are the second favorite target. I have a personal experience in wanting to pay the mother of one of the vandals of bank ATMs. She was quite anxious to have some money from me, and I would have helped her out . . . but the ATMs at the banks had been destroyed. It was the weekend and I was unable to give her the cash she wanted. Whether it registered to her 20-something son that he was hurting his own family by he and his friends’ actions was not clear. Another of their contradictory acts is to protest that they want jobs yet these hooligans don their kerchiefs and backpacks to protest against private universities that could give them and college graduates of their generation very good jobs at home in Greece.
And the group that was caught by the cameras tossing firebombs into the bank have used this same method before targeting banks.
20,000 to 40,000 citizens on the streets during a demonstration is few for Athens where strikes by labor unions of both working class and professional groups are quite common. A handful of the ragtag vandals following behind the legitimate protestors have been given credit by much of the foreign news media for causing a panic on Wall Street; exactly the wrong kind of social reinforcement needed by this immature group.
PASOK is the name of the party which won the recent elections and inherited all many shocking surprises of a country badly in debt. They won against the second large political party in Greece, the New Democracy Party, and the party which Barnaby Phillips, the AJE Athens correspondent, rightly reported has almost thoroughly discredited itself with the populace.
Although the majority of the citizens understand that the austerity measures are the only choice and support Prime Minister Papandreou and the PASOK party; New Democracy is playing along with the foreign media and voting against the austerity plan. Or is it possibly the speculators who gave loans and have been betting for a Greek default who are being supported?
The commentary from ekathimerini was written after three innocent people died in a bankwhenr a fire bomb came crashing through the office window. They died of asphyxiation.
I don’t agree that the government has been in a panic. The Prime Minister and the Ministers of Economy and Finance have been articulate and soft spoken each time they’ve been questioned on the decisions they have been making.
Will the Greek society self-destruct? An unlikely scenario given the history of Greek survival against all odds.
Will the Greek government go bankrupt? The European Union is young and a mechanism has not been established for members of the European Union to go bankrupt (The Brief, CNNI).
The modern democracy of Greece is young and far more inclusive than the ancient Greek democracy. (Perhaps you recall the USA government/Kissinger-backed dictators who ruled Greece in the early 1970’s?)
I do agree with the last sentence of the commentary which is the reality we face in Greece. “Greece is at the most crucial point of its post-1974 history and whether we destroy ourselves or not, . . . depends not just on our political leadership, but also on every single one of us individually and collectively.”
Posted in From The Editors, The World Today
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Tags: Athens, commentary, ekathimerini, financial crises, Greece, Greek debt, Nihilistic hooligans, protests, street demonstrations