New sensation as ‘troika’ effectively takes over the running of Greece

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Rift between Berlin & Bankfurt widens: Papandreou allegations won’t help

A poll published on the 18th of May 2011 in Greece showed that 77% of the electorate had no faith in Mr. Papandreou’s ability as a Prime Minister to handle the Greek fiscal crisis. A lifelong Socialist, Papandreou is seen to have completely lost the confidence of his core voters, largely as a result of his acquiescence in the austerity measures demanded by Brussels, the ECB and the IMF. But new allegations from the floor of the Athens Parliament suggest that the Prime Minister may well have ensured his own lifeboat is well-stocked. This will widen the gap between Angela Merkel, and ECB head Jean-Claude Trichet. While Merkel has long advocated a cautious restructuring of Greece’s debt, Frankfurt-based Frenchman Trichet categorically rejects any form of debt deferral for Athens. Bold?

Recently, in an interview on Greek television, Member of Parliament for New Democracy, Panos Kammenos, made allegations that if true would point to a massive scam undertaken by senior members of Greece’s ruling elite.  These allegations were repeated by Mr. Kammenos on the floor of parliament and given support by the leader of LAOS, Mr. George Karatzaferis. In a nutshell, they allege that Papandreou and members of his team presided over the sale of 1.3 billion dollars worth of credit default swap contracts (CDS on Greek sovereign debt) on or around December of 2009, shortly after coming to power. The $1.3 billion worth of insurance protecting against a Greek default was bought during the spring and summer of the same year, by the Hellenic Postbank, a public banking arm of the Greek government. (In other words, public funds to be used for public insurance against default).

Were it to be cashed in today, the policy would pay out in the region of $27 billion – a substantial amount to put against spiralling debt management.

But the Greek government is no longer in possession of this $27 billion of CDS. It was sold for  a minimal profit soon after being bought. A Swiss-based wealth-mamagement firm set up the same year, IJ Partners, bought the insurance – says Kammenos.

What was public money is now, mysteriously, become very private money. And there are some disturbing names among the officers and clients of IJ Partners. The firm, based in Geneva, has a number of well-known Greeks serving as either managing partners or members of the board, including former IMF economist Miranda Xafa (who intermediated Greece’s dealings with the IMF) – a former CEO of Piraeus Bank….one of the banks named in a law suit for secretly shorting Greek government bonds during the period in question. Another upstanding Greek citizen working there is Theodore Margellos, a high-profile export mogul who, according to Kammenos’ speech on the floor of parliament, is accused of falsely passing off imported corn from Kosovo as Greek produce.

IJ’s Vice President, Mr. Jose-Maria-Figueres, shares board membership of a separate private company with  the Prime Minister’s own brother, Mr. Andreas Papandreou Jr.

Association doesn’t spell guilt in a Court of Law, but at the time that the Hellenic Postbank of Greece sold the CDSs to IJ, Prime Minister George Papandreou was consulting personally with the IMF about how to proceed with what became the Greek bailout package. News of these discussions had not yet leaked – and credit markets had yet to uncover the extent of the impairment to Greece’s national balance sheet.

Yet the Athens Government decided that, rather than present the CDS insurance policy as a profound reassurance for the markets, it would sell it….to a Swiss outfit crammed with senior Greeks – and known to the Papandreou family. Rising bond yields caused by speculation about Greece’s lack of funds to service was the main factor pushing Greece into the clutches of the IMF. And Greece probably wouldn’t be in quite the position it occupies today.

There’s more. Greek bonds were being sold short by the usual banking suspects in Europe and the United States: including Goldman Sachs – who only three years previously had held a private seminar for the previous Athens administration, the purpose of which was quite obviously to mislead the EU officials in Brussels about the depth of Greek indebtedness.

With Greek bonds thus under short-selling fire, the Central Bank of Greece then took an inexplicable decision: to change the legal settlement period for shorting government bonds from 3 days to 10 DAYS. The direct effect of doing this was to massively pump up the value of the Greek CDS insurance already sold to IJ Partners. The side effect, of course, was to massacre the bond price and spike yields from them….in other works, knacker the Greek debt strategy completely.

None of this is conclusive proof: but the wealth of circumstantial evidence suggesting graft and complicity is more than enough to give the whole affair a very nasty smell…..and further convince Fritz in die Berlinerstrassen that the Greeks should not be given any more money. That in turn puts Frau Merkel in an impossible position, because she wants Fritz’s votes (the bonkers anti-nuclear energy decision is as clear a piece of evidence to support that view as we’re ever going to get) but she also wants a Greece remaining in the euro – and effectively a chattel of ‘Grossdeutschland’.

Beware of Greeks selling swaps. And be very, very afraid of geopolitics getting in the way of financial common sense. As Der Spiegel correctly asserts this morning:

‘The cold war between Berlin and Frankfurt reached a new high last week. Should Germany implement its plans, the ECB would have to cut off funding for Greece, monetary watchdogs warned. The consequences for Europe’s banks and the Greek economy would be devastating…..After a year of collective aid, the situation in Greece has not improved. On the contrary, almost all economic indicators have reached alarming levels. Meanwhile, the reform process has stalled and the country is making little progress. This is the conclusion reached by the so-called troika, consisting of the ECB’s economic and financial policy investigation and intervention team, the European Commission and the International Monetary Fund (IMF). In their quarterly report, which they expect to release at the end of this week, the experts maintain that Greece is failing to meet almost all agreed to fiscal goals.’

The Papandreou allegations could be the spark that finally ignites widespread violence among the Greek citizenry. Looking at the evidence against both medium and short-term causes of the debt-hole, it’s easy to understand their burning anger.