Has the Greek crisis 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 mask billions of dollars of debt? 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 future income streams, to hide the extent of their budget deficit(s) and national debt. Such schemes were also popular in some of the other PIIGS countries.
Greece remains the main subject of discussion for EU finance ministers currently meeting in Brussels. The EU appears to have slept through the Greek use of accounting tricks to hide their deficits and is presently engaged in a good deal of collective self-recrimination for not paying closer attention to the true state of Greece’s dismal public finances much earlier. As a result, the EU is to send teams of experts from the European commission, the European Central Bank and the International Monetary Fund to police the Greek austerity programme and rule whether the package will achieve its aims. The meeting in Brussels was dominated by working out how the unprecedented policing regime would work.
Greek Finance Minister George Papaconstantinou said his task was like changing “the course of the Titanic.”
SWAPS DISCLOSURE
Brussels based European Union regulators have ordered Greece to disclose details of complex derivative currency swaps after an inquiry by the Greek Finance Ministry uncovered a series of agreements with banks that may have been used to conceal mounting debts. The swaps were employed to defer interest payments by several years, according to a February report commissioned by the Finance Ministry in Athens that is being examined by lawmakers. “While swaps should be strictly limited to those that lead to a permanent reduction in interest spending, some of these agreements have been made to move interest from the present year to the future, with longterm damage to the Greek state,” according to the Greek Finance Ministry report.
Genesis of Swaps Requirement Greece’s burgeoning budget deficit caused it to fail the criteria for joining the single European currency in 1999. Member nations had to reduce deficits to less than 3% of GDP and trim national debt to less than 60% of GDP to join. As a result, it joined the euro in 2001. How did it manage to do that?
