American Banks helped the Greeks swindle the EU

[Axiomatic]

I would imagine that the EU would be less concerned that Greece broke EU law than by the fact that there exists a foreign bank that apparently makes its business to enable its clients to break EU law. I mean, one is a crime, the other is enemy fucking action.

[Oskuro]

Now, who is willing to bet that everyone of these countries that are pointing the finger and yelling at Greece have made similar shady deals that simply haven't been exposed?

While the Greek government may be fucked up on multiple levels to allow this to happen, the rest of the EU governments aren't exactly beacons of propriety and uncorruptability.

So? No government is (power corrupts and all that), but are you saying the EU should be lenient? Because throwing the book at perpetrators tends to be a good deterrent for further transgressions.

[bobalot]

Now, who is willing to bet that everyone of these countries that are pointing the finger and yelling at Greece have made similar shady deals that simply haven't been exposed?

While the Greek government may be fucked up on multiple levels to allow this to happen, the rest of the EU governments aren't exactly beacons of propriety and uncorruptability.

Where is the evidence for this?

[Thanas]

^There is none. I for one would love to have KrauserKrauser's insight into the inner workings of France and Germany, because apparently he has access to sources the rest of the media has not.

[KrauserKrauser]

It was entirely supposition, you may be able to see that from the first few words. There are a bunch more countries in the EU than just France and Germany. For one I would be unsurprised to hear that Italy and possibly Ireland had engaged in similar actions as Greece.

Again, entirely a though experiment, no basis in fact, though I reserve the right to claim "Called it!" if it is revealed Goldmann Sachs or JP Morgan Chase had similar dealings in other EU countries.

[Thanas]

You are right that Italy did use a similar mechanism. However, this was done legally and only took place over one year or so, which is somewhat nifty but is not really something that is designed to fool the EU over several years. The way I remember it is that Italy made a nice profit out of their deal. So same mechanism, different intent and effect.

However, you said most countries and I would be very interested which ones you meant. Because the ones pointing the fingers are mostly Germany and France.

[cosmicalstorm]

The leftwing here in Sweden will love this. They had a huge campaign against the Euro, now it seems they were right. I wonder if EU-countries that never accepted the Euro will be less damaged than the ones that did?

[K. A. Pital]

Italy did engage in a LOT of economic bullshit. Apparently some ugly facts are surfacing right now, is that right?

[Thanas]

Italy did engage in a LOT of economic bullshit. Apparently some ugly facts are surfacing right now, is that right?

None that were not already known AFAIk. Honestly if Italy were not already a member of the EU, the place might already have collapsed by now due to the utter dysfunctional society and state they have. But apparently Italians love Berlusconi and the mafia gang and probably nothing short of the EU occupying the place and putting them under strict supervision will fix it. it is funny - whenever I meet Italians, they always sort of admiringly tell me about the efficient German state system/administration/courts yet when it counts, most of them happily vote for Berlusconi. Maybe an Italian can explain it better, I am honestly at a loss.

But yeah, Greece, Italy, Portugal and Spain are troubled right now. Their growth was mainly dependant on influx of foreign capital and that will only get you so far. Spain and Portugal should be able to fix themselves, but Greece and Italy are in a world of hurt. Greece moreso, but if Italy does not pony up, they too will get into a lot of trouble. But then, people have been saying that about Italy over the last 50 years and they still manage to get by.

[Bilbo]

I find all of this fascinating. Can someone explain to me exactly what Greece is doing that is so wrong? Or for that matter Italy?

This is a slideshow showing the top 20 debtor nations in the world. To make it simple I will list the nations and the debt as a percent of their GDP.

http://www.cnbc.com/id/30308959/

20. USA 95.9%
19. Australia 108.8%
18. Hungary 124.2%
17. Italy 154.6%
16. Greece 175.3%
15. Spain 184.7%
14. Germany 189.4%
13. Finland 205.7%
12. Norway 208.9%
11. Hong Kong 218.8%
10. Portugal 231.5%
9. France 247.2%
8. Austria 268.9%
7. Sweden 275%
6. Denmark 315.2%
5. Belgium 345.6%
4. Switzerland 390%
3. Netherlands 395.6%
2. UK 427.6%
1. Ireland 1,352% (Yes that is not a typo)

I am not an exconomic expert but I fail to see how anyone in the EU can criticize anyone else over their debt load. The most common ones I hear the news are Spain, Greece, and Ireland. Now of course I understand Ireland. That is just insane. But why no news about the UK, Germany, or France, who all have debt loads worse than Spain.

What am I missing here?

As a side note, seeing these debt loads makes me really wonder how anyone can say a socialist/social democrat government is a success.

[Thanas]

What am I missing here?

It is quite simple. We have a treaty in the EU stating that governments must not have more than 4% deficit each year. The idea behind that is that this will limit government spending and eventually help decrease the overall debt or keep it manageable. What Greece was doing was to dramatically increase their debt over the last few years. Thus, while they might not have that much debt (and these numbers look a bit funny anyway, this is far better) in total, they are on the verge of collapse due the additional debt accumulating that quickly.

As a side note, seeing these debt loads makes me really wonder how anyone can say a socialist/social democrat government is a success.

Since when are Ireland, teh UK, the Netherlands, Switzerland and Belgium considered socialist states? You appear to be very, very ignorant when it comes to foreign politics.

[Serafina]

Thing is, IIRC, most debts from european nations are either to their citizens or other nations in the EU.
Therefore, these debts carry far less risk and impact on the currency.

Meanwhile, the USA is loaning most of their debt from other countries - which harms their currency and puts them under a certain pressure.

[Kane Starkiller]

Thus, while they might not have that much debt (and these numbers look a bit funny anyway, this is far better) in total,

That's a list of countries by their public debt as a percentage of their GDP. Bilbo showed a list of countries by their total external debt (to foreign countries) as percentage of their GDP.

[Thanas]

Thus, while they might not have that much debt (and these numbers look a bit funny anyway, this is far better) in total,

That's a list of countries by their public debt as a percentage of their GDP. Bilbo showed a list of countries by their total external debt (to foreign countries) as percentage of their GDP.

Ah, thanks. That explains it. These numbers posted by Bilbo are not applicable to our debate then, for the EU treaty only regulates public debt.

[Bilbo]

Since when are Ireland, the UK, the Netherlands, Switzerland and Belgium considered socialist states? You appear to be very, very ignorant when it comes to foreign politics.

Which is why I said socialist / social democrat. All of the nations you listed are more left leaning than the United States. Also what are you trying to accomplish by cherrypicking names out of the list. There are some very socialist bent nations on that list with very large debt loads.

[Thanas]

Since when are Ireland, the UK, the Netherlands, Switzerland and Belgium considered socialist states? You appear to be very, very ignorant when it comes to foreign politics.

Which is why I said socialist / social democrat.

The two are not the same.

All of the nations you listed are more left leaning than the United States. Also what are you trying to accomplish by cherrypicking names out of the list. There are some very socialist bent nations on that list with very large debt loads.

But the largest are nations that can hardly be described as socialist. Which nations would you describe as socialists, Bilbo? Please do so and come up with reasons why, for otherwise your argument has no merit whatsoever.

[Guardsman Bass]

Meanwhile, the USA is loaning most of their debt from other countries - which harms their currency and puts them under a certain pressure.

That's actually not the case. Domestic holders of US Treasury bonds - particularly the Federal Reserve - are significantly larger than foreign holders of that debt. The Chinese figure the link has is a little outdated, but the amount the Federal Reserve alone has dwarfs both China and Japan (the two largest foreign holders of US debt).

[Serafina]

Meanwhile, the USA is loaning most of their debt from other countries - which harms their currency and puts them under a certain pressure.

That's actually not the case. Domestic holders of US Treasury bonds - particularly the Federal Reserve - are significantly larger than foreign holders of that debt. The Chinese figure the link has is a little outdated, but the amount the Federal Reserve alone has dwarfs both China and Japan (the two largest foreign holders of US debt).

I will readily admit that the above was just an explanation my economics-teacher gave me about half a decade ago.
So, if it is wrong, i conceed the statement completely.

[Guardsman Bass]

Meanwhile, the USA is loaning most of their debt from other countries - which harms their currency and puts them under a certain pressure.

That's actually not the case. Domestic holders of US Treasury bonds - particularly the Federal Reserve - are significantly larger than foreign holders of that debt. The Chinese figure the link has is a little outdated, but the amount the Federal Reserve alone has dwarfs both China and Japan (the two largest foreign holders of US debt).

I will readily admit that the above was just an explanation my economics-teacher gave me about half a decade ago.
So, if it is wrong, i conceed the statement completely.

No worries. I thought the same myself a while ago, particularly since the media over here constantly plays up the "borrowing from the Chinese" bit whenever the debt comes up in the news.

[bobalot]

It was entirely supposition, you may be able to see that from the first few words. There are a bunch more countries in the EU than just France and Germany. For one I would be unsurprised to hear that Italy and possibly Ireland had engaged in similar actions as Greece.

Again, entirely a though experiment, no basis in fact, though I reserve the right to claim "Called it!" if it is revealed Goldmann Sachs or JP Morgan Chase had similar dealings in other EU countries.

Translation: I had nothing of value to add to this thread so I made some bullshit up.

BTW, Not all the countries in the EU want such harsh rules enforced on Greece. Italy, Spain and Portugal are broadly supportive of a bailout. France and Germany (in particular) want to Greece cut back on spending and raise taxes before any bailout is considered. So it's only a few major players "pointing their finger at Greece".

[bobalot]

But the largest are nations that can hardly be described as socialist. Which nations would you describe as socialists, Bilbo? Please do so and come up with reasons why, for otherwise your argument has no merit whatsoever.

It's telling how Biblo assumes that any nation that is to the left of America in terms of politics must be some form of socialist nation. I suspect that he is a moronic troll.

[J]

I find all of this fascinating. Can someone explain to me exactly what Greece is doing that is so wrong?

Fraud and violation of EU economic policies. Think Enron/Arthur Andersen on a nation-state scale.

I am not an exconomic expert but I fail to see how anyone in the EU can criticize anyone else over their debt load. The most common ones I hear the news are Spain, Greece, and Ireland. Now of course I understand Ireland. That is just insane. But why no news about the UK, Germany, or France, who all have debt loads worse than Spain.

It's not the debt by itself which is bad, it's the cost of servicing the debt. $10,000 at 1% on a line of credit isn't as bad as $1000 at 20% on a credit card, the same principle applies to nations. Some nations for various reasons enjoy much lower interest rates & carrying costs on their debt. Germany & France may have higher overall debt loads than Spain but since they're perceived as having strong stable economies and good creditworthiness they enjoy much lower interest rates on their debt payments. The UK is sort of in the same boat as France & Germany for now, which is why it hasn't collapsed yet. Spain, Portugal, Greece, and Italy do not enjoy these perks since they're not regarded as solid economies.

There's a lot more such as who holds the debts, the duration & distribution of those debts and so on & so forth, I really don't want to spend hours typing up all that stuff.

[J]

BTW, Not all the countries in the EU want such harsh rules enforced on Greece. Italy, Spain and Portugal are broadly supportive of a bailout.

Of course they are, afterall, they're all doing the same thing and a bailout for Greece sets a precedent for bailing them out when they start going under.

Reuters link

FACTBOX - Debt derivatives deals in weak euro zone states
Mon Feb 22, 2010 12:44pm EST

LONDON, Feb 22 (Reuters) - Eurostat, the European Union's
statistics agency, has asked Greece to explain reports it did
derivatives trades with U.S. investment banks that may have
helped it mask the size of its debt from the EU.

Following are details of major debt swaps, debt
securitisations and other complex debt deals conducted by the
five most seriously indebted members of the euro zone -- Greece,
Portugal, Spain, Italy and Ireland -- over the past decade.

Most deals were known to Eurostat when they were conducted,
involved no illegality, and were similar to debt management
transactions done by governments across Europe, officials said.
For an analysis of this, click [ID:nLDE61H0VL].

The data suggests the deals were too small to have a big
impact on countries' overall debt burdens. But in some cases
they lowered the ratios of countries' budget deficits and public
debt to gross domestic product by many tenths of a percentage
point for individual years -- helping governments obey rules for
euro zone membership -- while increasing long-term liabilities.

Few major deals were done late in the decade.
Securitisations began to decrease after Eurostat started
tightening its accounting rules covering them in July 2002;
rules on recognising swaps were tightened in March 2008.

The information is obtained from government officials,
legislators, bankers and analysts, but may be incomplete where
officials have not revealed full details.

GREECE SWAPS: In 2001, the government did cross currency and
interest rate swaps with Goldman Sachs (GS.N) converting debt
into a stream of future liabilities; Goldman said the deals
reduced the country's debt by a total of 2.3 billion euros, or
about 1.6 percentage points of GDP to 103.7 percent. The swaps
were restructured in 2005 so that repayment was to be completed
in 2037 instead of 2019, according to a former top Greek
official involved in the deals; more restructuring took place at
the end of 2008 involving the government, National Bank of
Greece (NBGr.AT) and a legal entity named Titlos. Deputy Finance
Minister George Doukas said in 2005, quoting market sources,
that the deal earned Goldman about 200 million euros in fees.

According to Socialist member of parliament Andreas
Makrypidis, Greece also did interest rate swaps worth 1.3
billion euros in 2005 and 450 million euros in 2006. The finance
minister and public debt management agency declined to comment.

STRUCTURED BONDS: After 2005, the government issued
structured bonds that caused controversy after being bought by
state-run pension funds at inflated prices. One, a 12-year, 280
million euro "defence bond" to finance military expenditure, was
underwritten by JPMorgan (JPM.N); the investment bank ultimately
said it would buy the bonds back, while denying any wrongdoing.

SECURITISATIONS: In 2000-2001, the government raised about
3.8 billion euros from securitisation of future revenues, paying
fees of about 40 million euros.

Deals were: -- About 355 million euros in future revenues from European
aviation security organisation EUROCONTROL for the years
2001-2019. The sale vehicle was named Aiolos.

-- About 2 billion euros in future revenues from European
Union structural economic aid to Greece, via the Atlas vehicle.

-- About 700 million euros in future revenues of state-run
Loans and Consignments Fund, via Hellenic Securitisations.

-- About 650 million euros from future state lottery
receipts, via the Ariadne vehicle. In 2005, the government planned to raise 1.1 billion euros
through securitisation of future revenues; it eventually said it
had decided to drop the plan. Greek press reports suggested the
EU had discouraged Greece from going ahead with it.

PORTUGAL SWAPS: Treasury Secretary Carlos Pina told Reuters last week
that his government, which took power in 2005, had not used any
"exotic" derivatives operations to raise funds. He said the volume of Portugal's debt repurchase operations
and swaps was insignificant, and the handful of such operations
covered interest rate and currency risks which were "practically
non-existent" as the bulk of Portugal's debt is in euros.

SECURITISATIONS: The government in 2003 sold over 11 billion
euros of non-performing tax and social security debts to
Citigroup (C.N), receiving about 1.8 billion euros in exchange.

The Socialist government which subsequently came to power in
2005 has said on many occasions that extraordinary revenues
cannot be used to lower budget deficits. In the run-up to last
September's general election, Prime Minister Jose Socrates said
Portugal was still paying dearly for the 2003 deal.


SPAIN Spain's Economy Ministry said this week that the country had
never used derivatives that affected Spain's reported debt
levels. Analysts said Spain had not been active in the debt
securitisation market over the past decade. This is at least partly because, until recently, Spain had
very little debt. Public finances were in surplus between 2005
and 2007, though the budget has fallen into a deficit of 11.4
percent of GDP in 2009.

ITALY In 1997, Italy conducted with a foreign bank at least one
currency swap, based on a 200 billion yen government bond issue,
which helped to cut its budget deficit to GDP ratio, according
to media reports; it obtained cash up front in exchange for
accepting an unfavourable exchange rate when eventually repaying
the debt. The government has not confirmed the deal took place
but issued a statement saying derivatives operations conducted
in 1997 totalled no more than 0.05 percent of GDP. It said all
Italy's debt management operations were approved by Eurostat.

A senior Italian financial source said last week that in
total, outstanding debt derivatives deals conducted by the
central government were "negligible" and in line with levels for
other governments. He could not provide a figure.

Some derivatives deals have been conducted by Italian local
governments such as regions and cities; the notional value of
derivatives held by them was 24.45 billion euros last March,
down from 33 billion euros at end-2006, said a 2009 Bank of
Italy report to parliament. Fabio Amatucci, an economist at Milan's Bocconi University,
estimated last year local governments faced losses of 6 to 8
billion euros on derivatives exposure of about 40 billion euros.

In Milan, prosecutors have asked that JPMorgan, Deutsche
Bank (DBKGn.DE), the London unit of UBS (UBSN.VX), the Dublin
unit of Germany's Depfa and 13 people be tried for aggravated
fraud over a 30-year swap done in 2005 that involved a 1.68
billion euro city bond. Milan estimated it lost over 300 million
euros on the deal. The banks declined to comment.[ID:nMAT011907]

In the region of Puglia, prosecutors are investigating
Merrill Lynch, a unit of Bank of America (BAC.N), and Belgium's
Dexia SA (DEXI.BR) over derivatives losses from 870 million
euros in regional bonds issued in 2003-2004. The deal involved
an interest rate swap and a change to capital payback from a
single "bullet" repayment at maturity to an amortising scheme.
Merrill Lynch declined to comment, while Dexia Crediop said it
had not underwritten any derivatives with Puglia.[ID:nLDE612249]

SECURITISATIONS: Between 1999 and 2008, and mostly before
2005, the Treasury conducted a series of securitisation deals.
The main operations were securitisation of future revenues from
the sale of government real estate (SCIP 1-2), future revenues
from the recovery of debts owed to state pension agency INPS
(INPS 1-6), and future revenues from the state lottery (LOTTO).

At the end of 2005, total revenues from these operations
were 39.8 billion euros, of which 27.3 billion euros were used
to cut the stock of public debt, 6.6 billion euros to lower the
budget deficit, and the rest to fund spending.

All securitisation operations were wound up at the end of
2008, when the Treasury announced to parliament that the SCIP
operations had actually cost the Treasury a net 1.74 billion
euros, because it had in the end been unable to raise as much
money as expected from the sale of real estate, officials said.

IRELAND The finance ministry declined to comment on any debt
derivatives or securitisation activity by the government.

However, analysts and other financial sources familiar with
Ireland's debt profile said significant activity had not taken
place. During the decade until the global financial crisis,
Ireland's public debt was tiny -- just 23 percent of gross
national product in 2007 -- so there was no need to shift or
hide portions of it, they said.

(Reporting by Harry Papachristou in Athens, Andrei Khalip in
Lisbon, Paul Day in Madrid, Giuseppe Fonte and Gavin Jones in
Rome, Ian Simpson in Milan, Barbara Lewis in Dublin, and Alex
Chambers and Kirstin Ridely in London; Editing by Andrew
Torchia)

I'm fairly certain we haven't gotten to the bottom of all these deals.

[Colonel Olrik]

BTW, Not all the countries in the EU want such harsh rules enforced on Greece. Italy, Spain and Portugal are broadly supportive of a bailout.

Of course they are, afterall, they're all doing the same thing and a bailout for Greece sets a precedent for bailing them out when they start going under.

That's bull (and Bobalot, please provide a link to the Spanish or Portuguese government supporting a bailout for Greece, I haven't read anything about it and I strongly believe I read more Portuguese news than you).

Please don't mix Portugal and Spain with Italy and Greece. The countries may show some resemblance looking from afar, but it stops there. The whole mentality is widely, widely different. The Portuguese and Spanish are fucking serious, specially when compared to the other two. Hell, the expression "Poor but honest" is part of the Portuguese identity. Our institutions (such as the National statistics bureau and national treasury) are independent, trusted within the countries and abroad and functional/powerful. Italy and Greece are fucking jokes in comparison, and they admit it readily when talking with us. In that regard, they see us in the same level as the northern countries.

Bottom line is, the existing economic indicators for Portugal/Spain are better than for Greece, and I believe the official data and documentation of those countries, and the capability of the governments to keep the countries respectable. In Italy and Greece "reliable statistics" is only said in the context of a practical joke and "respect" is something you imperatively have to show your family and local mafia and that's pretty much it.

[J]

Stealth bank run underway in Greece. $8 billion doesn't sound like much, but according to the article it's around 1/4 of the assets in privately owned Greek banks.

WSJ link

FOCUS: Greeks Move EUR8 Billion From Local Banks In 3 Months


By Costas Paris
Of DOW JONES NEWSWIRES


ATHENS (Dow Jones)--Wealthy Greeks have moved around EUR8 billion out of local banks in the past three months fearing a possible new tax on bank accounts, increased government scrutiny on assets and a run on the banks if Athens is forced to turn to the International Monetary Fund, according to private bankers and other people with knowledge of the situation.

"There is a lot of uncertainty out there," said a senior private banker at a Greek bank. "We've had a number of customers asking to move funds out of Greece, mostly to Cyprus, Luxembourg and Switzerland."

Greece is under intense pressure from the European Union to cut a budget deficit that now accounts for 12.7% of gross domestic product, four times the euro zone's limit of 3%.

The government has already announced an EUR8 billion austerity package for this year and has declared war on income that hasn't been taxed, prompting fears among wealthy individuals that there will be new taxes on bank accounts.

The government estimates that at least 30% of the money generated in Greece is untaxed.

Clients of private banks also fear that Greece may be unable able to raise the EUR54 billion it needs this year to pay back maturing bonds and will therefore have to turn to the IMF for help.

"Some of our clients are concerned about a run on the banks if the IMF gets involved," said another private banker, this one from a foreign bank. "They believe the situation in Greece will get worse before it gets better. There is also very little clarity from the government about its intentions on new tax measures."

"We estimate that EUR8 billion has moved out of Greece to accounts abroad since December. It's money from bank accounts, stock sales, property sales and other sources. This is pretty substantial considering that there is only EUR30 billion under management in private banks here," he added.

The finance ministry wasn't immediately available for comment on any plans to tax bank accounts.

Wealthy individuals may have good reasons to be concerned, however. Finance Minister George Papaconstantinou earlier this month urged Greeks with accounts abroad to repatriate their money and said the capital will be taxed at a 5% rate. He said those who choose to keep their money abroad should declare their deposits and pay a tax of 8% for the first six months.

Thereafter he threatened that Greece will use all laws at its disposal, such as double-taxation agreements, to ask foreign banks for information on Greek account holders.

"For us this is the first step towards taxing all accounts in Greece," said the chief financial officer of a major Greek shipping company. "The line is minimum deposits here and moving all assets abroad,"

"Money will flow back into Greece when the situation returns to normal. This won't happen for at least a year and there is not a lot of trust for the Greek banking system right now," he added.

Greece's four largest banks--National Bank of Greece (NBG), Alpha Bank (ALBKY), Efg Eurobank Ergasias (EGFEY) and Piraeus Bank (TPEIR.AT)--saw their credit ratings downgraded Tuesday by Fitch Ratings, which listed the outlook for all four as negative. The agency also affirmed the negative outlook on Agricultural Bank of Greece, which is majority-owned by the state.

"The rating actions reflect Fitch's view that the banks' already weakening asset quality and profitability will come under further pressure due to anticipated considerable fiscal adjustments in Greece," Fitch wrote.

The ratings agency did say, however, that reduced reliance on funding from the European Central Bank could improve the banks' outlooks to stable.