Thursday

14th Dec 2017

Merkel denounces bank deals with Greece

German Chancellor Angela Merkel has strongly criticised investment banks who allegedly helped Greece to mask the true extent of its mounting debt pile over the years from EU monitors.

"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 Ms Merkel during a speech in north-eastern Germany.

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  • Angela Merkel spoke out strongly about the banks' alleged behaviour (Photo: bundeskanzlerin.de)

Across the globe, the financial crisis forced governments to bail out struggling banks, and caused lawmakers to shine a closer spotlight on the nature of their activities.

But reports this month suggest Wall Street investment banks also provided Greece, and perhaps other EU states, with complex derivative products that enabled the government to keep fresh debt off its declared balance sheet.

Attention has focused on a deal between Athens and Goldman Sachs in 2001 which involved exchanging more than €10 billion ($13.69 billion) in dollar and yen-denominated Greek government bonds into euros.

By using an artificial exchange rate that did not accurately denote the market value of the euro, the Wall Street bank effectively handed Greece a €2.8 billion loan, suggest some reports.

Greece has defended the action, known as a currency swap, saying it was legal at the time. Analysts also suggest that, prior to a tightening of EU accounting rules in 2008, Greece wasn't obliged to include such loans in its overall public debt figures.

The European Commission has given Athens until this Friday to provide further details on the deal as it seeks to determine whether EU rules were broken.

Speculators

Adding to the anger of lawmakers is the role similar banks have played in destabilising the eurozone by betting on a fall in the value of the euro or on the likelihood of Greek sovereign default.

Politicians in EU countries such as France, Germany, Spain and Greece have attacked the speculating activities of hedge-funds and banks in recent weeks.

In particular, they point to the dangerous role played by credit default swaps, insurance-like contracts that pay out when an issuer defaults, and rise in value as credit conditions deteriorate. On Tuesday, EU internal market commissioner Michel Barnier said a closer look at the effects of such instruments needed to be carried out.

Goldman Sachs is among the main group of speculators that has sought to profit from the ongoing market doubts over the Greek economy, notes the influential Coulisses de Bruxelles blog, highlighting the dual role 'aider' and 'attacker' played by the investment bank.

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