Business World

Thursday 27 July 2017

Greeks still using the Trojan horse on debt

Alan Katz and Elisa Martinuzzi

Four months after the €110bn bailout for Greece, the nation still hasn't disclosed the full details of secret financial transactions it used to conceal debt.

"We have not seen the real documents," Walter Radermacher, head of the European Union's statistics agency Eurostat, said in a recent interview in his Luxembourg office. Eurostat first requested the contracts in February.

Mr Radermacher has vowed new toughness when officials from his staff head to Greece this month to come up with a "solid estimate" of the total value of debt hidden by the opaque contracts. "This is a new era," he said.

Greece is the only euro country that lied about using these complex swap contracts after Eurostat told countries to report them in 2008, Mr Radermacher said. It also likely signed a greater number of individual agreements than any other euro member, based on information it has provided to Eurostat, he said.

Greece's debt was 115.1pc of its total economic output last year, second among the 16 countries that share the euro, behind Italy's 115.8pc.

"What the Greeks did was an absolute cardinal sin," said former finance minister Ruairi Quinn (right), who presided over the 1996 meeting where debt and deficit limits for countries joining the euro were set. "They deserve to be punished for it. I think they have been severely punished for it."

Confidence in Greece's statistics and its ability to repay debt was shattered last October, when the country more than doubled its 2009 deficit estimate. The euro plunged, sparking questions whether the single European currency could survive. It has lost 15pc of its value against the dollar since then.

Investors still don't trust Greece. They demand yields more than five times that of Germany to hold 10-year Greek debt -- a sign that buyers fear the country will have to reorganise its borrowing.

Predicament

"I think restructuring will be a necessary part of them pulling out of the predicament they are in," says Andrew Bosomworth, Munich-based head of portfolio management at Pacific Investment Management, which oversees the world's largest bond fund.

He cited the projection of the International Monetary Fund, which foresees Greece's debt topping out 149pc of gross domestic product in 2012.

Italy in May estimated that its debt would be 117.2pc of economic output in 2012.

The fiscal crisis has turned attention to currency swaps arranged by Goldman Sachs that helped Greece hide the extent of its debt.

"There are more, or even many, of this kind of swap operation, which we have to clarify," said Mr Radermacher, the former president of the German Federal Statistics Office who was appointed as the EU's chief statistician in April 2008. "The Goldman Sachs case was the beginning."

Greece has told the agency that the other contracts were each significantly smaller than the ones signed with Goldman Sachs, Mr Radermacher said.

Signed in 2000 and 2001, the Goldman swaps reduced the country's foreign denominated debt in euro terms by €2.367bn and lowered debt as a proportion of GDP to 103.7pc from 105.3pc, according to a statement by Goldman.

Greek government bonds have lost about 24pc since last October, according to Bloomberg/EFFAS indices.

"The swaps were part of the smoke and mirrors that were part of the mystique of the euro," said Bill Blain, joint head of fixed income at Matrix Corporate Capital in London.

"There's potential for Europe to trip-up again. It needs to provide full information and demonstrate that it is in control of the situation."

Changing Greece from a country that operates on hope to one that relies on hard numbers is Greek prime minister Papandreou's biggest challenge, said Mr Quinn, who lived in Greece for a year in the early 1970s.

"Part of becoming a modern Europe is shedding that tradition of being economical with the truth and not telling the full story," he added. (Bloomberg)

Irish Independent

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