So says James Turk...
Greece broke the rules. The Greek government borrowed too much. It spent too much. Because it broke the rules, it is not worthy to be included in the eurozone. So Greece should be expelled. Doing so would re-affirm the reliability of the euro and indeed, make credible the promise of every European government before joining the eurozone that it would follow the rules.
The rules are there for a reason. They impose discipline by preventing too much euro currency from being created, which was the same crisis Newton had to address. The Bank of England was launched in 1694, but its over-issuance of pound banknotes created a crisis only two years later. The pound was losing value, and the solvency of the Bank of England was being questioned.
Expelling Greece from the eurozone in practice would be straightforward. Any euros in Greece should be re-named as drachmas. Henceforth, people would have drachmas in their bank accounts. All Greek debts would be owed in drachmas. This new drachma would immediately fall to a discount to the euro, with the consequent loss in relative purchasing power. Thus, the cost of solving the Greek problem would fall where it rightly belongs – on the Greek people who allowed their government to put the country into hock and the lenders to the Greek government who foolishly underestimated the risks. Fairness and justice require that the cost of Greece’s mistakes should not be put on the shoulders of the other EU members.
With a little help from the Greek Governments friends at Goldman Sachs?
Greek Debt Crisis
How Goldman Sachs Helped Greece to Mask its True Debt
By Beat Balzli
Greek Finance Minister George Papaconstantinou speaking at a conference in January.
Greeks aren't very welcome in the Rue Alphones Weicker in Luxembourg. It's home to Eurostat, the European Union's statistical office. The number crunchers there are deeply annoyed with Athens. Investigative reports state that important data "cannot be confirmed" or has been requested but "not received."
The Greeks have never managed to stick to the 60 percent debt limit, and they only adhered to the three percent deficit ceiling with the help of blatant balance sheet cosmetics. One time, gigantic military expenditures were left out, and another time billions in hospital debt. After recalculating the figures, the experts at Eurostat consistently came up with the same results: In truth, the deficit each year has been far greater than the three percent limit. In 2009, it exploded to over 12 percent.
Now, though, it looks like the Greek figure jugglers have been even more brazen than was previously thought. "Around 2002 in particular, various investment banks offered complex financial products with which governments could push part of their liabilities into the future," one insider recalled, adding that Mediterranean countries had snapped up such products.
Greece's debt managers agreed a huge deal with the savvy bankers of US investment bank Goldman Sachs at the start of 2002. The deal involved so-called cross-currency swaps in which government debt issued in dollars and yen was swapped for euro debt for a certain period -- to be exchanged back into the original currencies at a later date.
Fictional Exchange Rates
Such transactions are part of normal government refinancing. Europe's governments obtain funds from investors around the world by issuing bonds in yen, dollar or Swiss francs. But they need euros to pay their daily bills. Years later the bonds are repaid in the original foreign denominations.
But in the Greek case the US bankers devised a special kind of swap with fictional exchange rates. That enabled Greece to receive a far higher sum than the actual euro market value of 10 billion dollars or yen. In that way Goldman Sachs secretly arranged additional credit of up to $1 billion for the Greeks.
This credit disguised as a swap didn't show up in the Greek debt statistics. Eurostat's reporting rules don't comprehensively record transactions involving financial derivatives. "The Maastricht rules can be circumvented quite legally through swaps," says a German derivatives dealer.
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