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Is Greece the bad boy in the Euro
club? It very much looks like it. A report from Greek website ekathimerini.com
may fuel the ire of its Eurozone buddies. After cheating its way into the
Euro the Hellenic Republic has speculated against itself by buying CDS on
Greek sovereign debt through state controlled Hellenic Post Bank (TT) in
2009, pocketing a profit of €35 million, it was reported(Hat tip Edward Hugh):
State-controlled Hellenic Post
Bank (TT) spent nearly 1 billion euros last year to secure its positions
against the possible bankruptcy of the Greek government, according to
documents seen by Kathimerini.
In August, the bank bought credit default swaps (CDS) – a form of
insurance on financial instruments – worth 950 million euros when the
spread on the Greek five-year bond over the German Bund was at 135 basis
points.
CDS products allow investors to purchase protection against the default of
debt issued by governments, hedging existing positions.
TT’s management, which changed after the Socialists took power in
October, sold the CDS when the spread was at 235 basis points in December,
earning a profit of some 35 million euros, the documents show.
The bank's position in CDS protected the lender from its exposure in Greek
bonds but also provided it with an opportunity to play a part in the global
CDS market worth some 8 billion dollars last year.
With a position totalling 950 million euros, or 1.2 billion dollars, TT had
the ability to shape momentum in the speculative derivatives market which the
Greek government wants to be controlled.
Prime Minister George Papandreou is among the global leaders that have
been pushing for increased financial market supervision of CDS and a
crackdown on market manipulation.
TT's previous CEO, Angelos Philippidis, had said in his last press conference
as head of the bank last year that the swaps were part of the lender's
"social role," giving it the ability to tackle speculators
targetting Greece.
It is ironic that TT sold its CDS
when the Greek spread stood at 235 basis points. Had they waited until
January, they could have sold at the top of 396 basis points. The current
spread is 337 basis points.
Prime Minister George Papandreou is likely to walk away empty-handed from an
EU meeting on March 25 and 26. Papandreou had hoped to secure favorable
interest rate terms for Greece's bailout, but ECB President Jean-Claude
Trichet rejected such a move on Monday, supported by German Chancellor Angela
Merkel, Bloomberg reports:
"There shouldn't be any
subsidy element, no concessionary element" in a potential loan to
Greece, Trichet told lawmakers in Brussels yesterday (ed: Monday.) Merkel
said in Berlin that there's no need for European Union leaders to make any
"concrete decisions" on Greek aid this week.
Conflicting signals from European capitals before the summit of EU leaders triggered
three days of declines in Greek debt that pushed the yield on 10-year bonds
to 6.44 percent yesterday, the highest since Feb 25. The surge in financing
costs led Papandreou to say on March 19 that his country, which needs to sell
about 10 billion euros ($14 billion) of bonds in coming weeks, is one step
away from not being able to borrow.
Greece must finance 20 billion euros of securities maturing in April and May.
As there have been no consequences
for Greece so far for defrauding the EU and the Eurozone it can be expected
that Mr. Market will continue to punish the birth place of Western democracy.
Unfortunately it will be as always the broad public and not the Mandarins of
Greek politics who will have to bear the brunt of the Greek tragedy. I am disgusted
at these signs that the EU does not honor a simple rule of justice: When
you're a fraud, you're out.
If Greece gets away with it all this is an invitation for all others to start
cheating too. Welcome to the 2nd dark age on the continent where power games
appear to trump legality.
Toni Straka
Editor, the Prudent Investor
Toni
Straka is an INDEPENDENT Certified Financial Analyst (OeVFA,
EFFAS) who worked as a financial journalist for 15+ years and now evaluates
global market trends. Analyzing financial and political news permanently he
wants to share his insight with those who understand that we are in an era of
global redistribution of wealth. The US-European centric approach does not
work anymore. Five billion people in the developing countries now demand
their fair share of the world's resources.
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