Austerity caused by the banks but paid by the tax payer, this is the reality the Greek people have to live with

As the people of Greece voice their support for anti-austerity, campaigns are being set up to direct the responsibility away from the tax payer and to the financial companies that were involved in the decisions leading to the financial crisis.

In 2001 a deal that was proposed by Antigone Loudiadis from Goldman Sachs, concealed Greece’s debt through swaps, allowing it to immediately lose 2 per cent of its debt from national accounts. This transaction allowed Greece to become part of the Eurozone, as it needed to show a directional decline in reducing their debt. However, in 2005 it would have disastrous effects for the Greek economy, with their debt from the deal doubling from 2.1 billion to 5 billion Euros.

Nick Dunbar said that the deal was a, ‘completely legitimate transaction under Eurostat rules’. His article first appeared in 2003, since then there have been a number of concerns calling into question the role played by Goldman in the current crisis. According to a BBC report, Eurostat claimed it had no knowledge of the deal until 2010.

Jaber George Jabbour, a former employee of Goldman, has advised Greece that it should begin legal proceedings from the disastrous deal that led to its current financial crisis, engineered by Goldman Sachs. However, this is not the first time there have been enquiries into the Goldman transaction, as in 2010 the company was under examination for the use of derivatives, ‘that potentially destabilises a company or country’.

Whilst some believe that the way out of the current crisis is to provide further loans for Greece, Yanis Varoufakis believes that Greece is insolvent and accepting bailouts increases the debt burden, leading into a spiralling array of paying debt and taking on more loans whilst pretending to be solvent. But even the bailout money that Greece does receive is not enough. According to the Guardian, the Greek Government only received £170 billion whilst most, ‘of the [bailout] money went to the banks that lent Greece funds before the crash’. Only, ‘10% of the bailout money was left’ for the Greek Government to reform its economy and safeguard its, ‘weaker members of society’.

The bailouts are seen as a lifeline for Greece but as Simon Johnson said, ‘colleagues at IMF are running around trying to justify bailouts of £1.5trn -£4trn … It means bailing out the creditors … another bank bailout … happening at sovereign level not bank level, but the rationale is the same’. In other words, the money is going to the banks and not to the people, who were not involved in the financial and political arrangements that have created the reality they are now living in. The debt was simply passed from the private sector to the public sector.

However, the New York Times says that, ‘bashing Goldman has become both a sport and a pastime’ and that there are plenty of other unnamed culprits in this party.

It was not until 9/11 and that negative effects were felt from the drop in interest rates from the Goldman and Greece deal. Until then, nothing was particularly noted as both parties were satisfied. Loudiadis set up a deal that the Greeks wanted and accomplished the goals they had. Nick Dunbar said that the use of derivatives was adopted by many European countries and the EU imposition of, ‘the combination of strict external targets with considerable local autonomy in sovereign debt management almost inevitably leads high-deficit countries towards derivatives’. Although, it has been argued that there should have been more transparency in the deal and that Goldman’s thirst for money definitely had an influence on it.

Greece was asked not to shop around for better deals otherwise it would lose the good value for money from the Goldman deal supposedly offered. This allowed Goldman to charge higher than normal and there have been reported estimates that the company made $500 million from the deal, although Goldman refuses to release any official figure. Jabbour says that unreasonably large profits were gained from the deal and that there may be evidence that the purpose was to ‘facilitate further borrowings’. Therefore, the Greek Government should seek compensation.

As anti-austerity protests break out across Greece its citizens are only allowed to live off 60 euros a day. The Greek people were not party to the contract as it was a secret deal organised between Goldman and Greece however, they are the ones being held responsible.

For now Greeks are paying for the situation through strict austerity imposed by Europe and a daily reality where cash machines have to be policed to prevent theft. ‘People are too poor to buy stuff and the banks are too weak to give credit’.

 

 Sources:

  1. http://www.independent.co.uk/news/world/europe/greek-debt-crisis-goldman-sachs-could-be-sued-for-helping-country-hide-debts-when-it-joined-euro-10381926.html
  2. http://www.risk.net/risk-magazine/feature/1498135/revealed-goldman-sachs-mega-deal-Greece
  3. http://www.thenation.com/article/goldmans-greek-gambit/
  4. https://www.youtube.com/watch?v=84j6DzzzyK8
  5. http://www.rt.com/business/273208-greece-goldman-debt-lawsuit/
  6. http://www.theguardian.com/world/2015/jun/29/where-did-the-greek-bailout-money-go
  7. http://www.nytimes.com/2015/07/14/business/dealbook/plenty-deserve-blame-for-greeces-woes-but-maybe-not-goldman-sachs.html?_r=0
  8. http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/7318877/Goldman-Sachs-faces-Fed-inquiry-over-Greek-debt.html
  9. http://www.wsj.com/articles/a-way-of-life-drowned-by-greeces-crisis-1440051334
  10. http://www.theguardian.com/business/2010/feb/18/greece-goldman-sachs-debt-derivatives
  11. http://www.bbc.co.uk/news/world-europe-33492097
  12. http://www.independent.co.uk/news/business/analysis-and-features/what-price-the-new-democracy-goldman-sachs-conquers-europe-6264091.html
  13. https://www.youtube.com/watch?v=07-hA9DW-Po