Don't get too excited about the euro: Greek crisis still isn't over

09/13/2010 4:16 pm EST


Jim Jubak

Founder and Editor,

Almost a year after the Greek government admitted it had lied about the size of its budget deficit and national accounts, setting off the euro crisis, and four months after a $140 billion bailout “solved” the Greek crisis the European Union still doesn’t trust Greek accounting. A team from Eurostat, the European Union’s statistics watchdog, is headed to Greece to put together what Walter Radermacher, head of Eurostat, calls a “solid estimate” of total Greek debt.

Better late than never, I guess.

The problem is that Greece still hasn’t turned over documents showing the details of debt swap contracts that the country used to hide the size of its debt. Eurostat first asked for the paperwork in February.

For example, Greece used currency swap contracts signed with Goldman Sachs in 2000 and 2001 to reduce the size of the country’s debt from 105.3% of GDP to 103.7%. The swaps included upfront payments that let Greece avoid putting the full amount of the debt on its national books.

Greece isn’t the only euro country to use this kind of swaps but Greece used more of these deceptive swaps than any other Euro Zone country, Eurostat believes, and it is the only Euro Zone country that lied about using the swaps after Eurostat told members to report them in 2008. Estimates say that about a third of Greek debt has a swap attached to it, although not all those swaps are structured to hide debt.

Almost a year after the Greek debt crisis hit the headlines, investors are still convinced that the country will have to default on its debt or at least conduct a reorganization that administers a haircut to holders of government debt. Yields on 10-year Greek bonds are roughly four times higher than yields on benchmark 10-year German bunds. On September 13 the yield on the 10-year Bund was 2.43%. The yield on 10-year Greek government bonds was 8.95 percentage points higher.

The International Monetary Fund projects that Greek debt will peak at 149% of GDP in 2012.  The ratio stood at 115% of GDP at the end of 2009.

Eurostat got new powers in August that allow it to audit a country’s financial data if there’s evidence that the national accounts aren’t accurate. The statistics agency expects to be able include its estimate of Greek debt in its scheduled October report on Euro Zone finances.

In the meantime, expect downward pressure on the euro to continue.
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