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Greece and the EU

Debt to GDP
Debt to GDP
FP Passport

The IMF dispatched a team today to Athens to review the Greek budget - those will be 'interesting' conversations.  Lots of fun.

Earlier this week Germany stepped in to back up the country's debt but there is increasing resistance developing in the German Bundestag (Parliament).  

From today's UK Telegraph: "The council of EU finance ministers said Athens must comply with austerity demands by March 16 or lose control over its own tax and spend policies altogether. It if fails to do so, the EU will itself impose cuts under the draconian Article 126.9 of the Lisbon Treaty in what would amount to economic suzerainty."

 It's all based on over-borrowing - (see the diagram above - the key bar is the red)  - Greece needs to reduce the debt overhang by 12.7% of GDP -and that is just going to cause social pain -  The Euro has dropped to all/time lows vs the dollar.  Baltic states - previously desperate to be Eurozone members are rethinking putting themselves under these budget restrictions/controls.

The point being that there is a lot at stake here - 1) Portugal, Italy and Spain are also in precipitous situationsl, 2) The Euro is being shorted with traders expecting the devaluation of the EU.  For info on 'short selling see the link below:

Is the Euro-zone set for implosion? - no but 'readjustment' or market imbalance is an opportunity for trading.

Finally - enjoy the Olympics (started in Greece) -  and below is a short excerpt from Forbes Magazine article ref Greece. 

Maurice Johnson

Post Road Advisors

1 203 450 2498


Goldman Sachs Shorted Greek Debt After It Arranged Those Shady Swaps

February 18, 2010 - 2:42 pm
John CarneyBio | Email

Goldman Sachs arranged swaps that effectively allowed Greece to borrow 1 billion euros without adding to its official public debt. While it arranged the swaps, Goldman also sought to buy insurance on Greek debt and engage in other trades to protect itself against the risk of a default on those swaps. Eventually, Goldman sold the swaps to the national bank of Greece

In light of this combination of arranging structured financing while shorting the customer's debt, Goldman may find itself in a familiarly uncomfortable public light. Goldman has come under a barrage of criticism for structuring mortgage-backed securities while its traders shorted that market. As a result of those short trades, Goldman lost far less money than its rivals when the U.S. housing market imploded.

Something similar is at work here and the criticism will likely follow along the same track. Goldman was uniquely well-positioned to understand that Greek debt service obligations were higher than they would have appeared just by looking at its official debt levels, making Greece a riskier credit. This knowledge may have allowed Goldman to acquire credit protection on the trades on the cheap.

In some ways, this latest “scandal” must feel like déjà vu for Goldman Sachs. The Greek swap transactions were first reported in Risk Magazine as far back as 2003. Der Spiegel picked them up recently, The New York Times revisited the story on Sunday, and today Bloomberg has a hold of it.


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