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Indecent proposal from Goldman Sachs to the Greek Government

15 February 2010 / 12:02:01  GRReporter
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"If a government wants to cheat, it can cheat," told The New York Times the veteran of the International Monetary Fund’s capital markets surveillance unit Gary Schinasi. The comment was made in connection with the tactics of Wall Street to help governments like the Greek one to hide their mounting debts debt from European observers. "A nation, which for decades tries to comply with European standards for the size of government deficit, is moving on the edge" of these rules – this is how the authors of the article “Wall St. Helped to Mask Debt Fuelling Europe’s Crisis” describe Greece. In the autumn of 2009 to light came the true values of the external debt, which is nearly €60 billion and government deficit is 12.7 percent of GDP, which Greeks have accumulated overnight. The NYT article reveals that in early November of last year a team of investment bankers and analysts had arrived in Athens, led by the president of Goldman Sachs investment mastodons Gary Cohn. 
Representatives of the international investment holding company had come to visit the Greek capital with ready-made recipe for the local government on how to "push" in the more distant future the huge debt problem formed in the health care sector. Obligations amounting to over €6 billion could be concealed on the principle of re-mortgage like owners of real estate that drew the second loan to pay the costs of their credit cards. Covering a financial hole by opening another one in the more distant future. The current government of PASOK did not accept the proposal of Goldman Sachs to "push under the carpet" the problems of the state budget, through the application of modern financial instruments. 

Such practice to conceal the real state debt and defer its payment, is not foreign to the Greek government. The article describes the events of 2001 when the Greek government has resorted to the services of Goldman, masking the true value of the government deficit. The deal was not publicly announced, and billions of euros of the loan were presented as a currency transaction that was not reflected as a deficit in the state budget. For this "service" in 2001, the Government has paid Goldman Sachs €300 million. So on paper, Greece complied with the rules of the eurozone to maintain a low level of public deficit to 3% of GDP, but actually continued to spend much more than it produces. The publication mentions that such transactions were not only done in Greece but also in Italy. The authors of The New York Times do not exclude the option that other European countries with serious financial problems have benefited from the opportunity to defer repayment of existing debt for the more distant future. 
"If politicians want to pass the ball to someone else and for example a banker shows them how to depart problem in the future, they (the politicians) will certainly benefit from this opportunity," said Eurobank economic adviser Gikas Hardouvelis. The article stresses: "Wall Street did not create Europe’s debt problem. But bankers helped Greece and others to borrow beyond their means, in deals that were perfectly legal.” Result of the Greek drama is that now it will be more difficult and expensive to finance countries such as Italy, Portugal and Spain, which are also in economic crisis.

Tags: Goldman Sach New York Times Wall Street Greek economy Budget deficit
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