1 / 18

Greek sovereign debt crisis: what about the others?

Greek sovereign debt crisis: what about the others?. C. Oldani Università di Viterbo “La Tuscia”. Outline. Debt management in the age of derivatives Greek financial operations from 2000 to 2002 The situation from 2004 to 2009 The ‘rescue plan ’ of 2010 (Troika) No happy end 

edm
Télécharger la présentation

Greek sovereign debt crisis: what about the others?

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Greek sovereign debt crisis: what about the others? C. Oldani Università di Viterbo “La Tuscia”

  2. Outline • Debt management in the age of derivatives • Greek financial operations from 2000 to 2002 • The situation from 2004 to 2009 • The ‘rescue plan’ of 2010 (Troika) • No happy end  • What about other countries?

  3. Aim of the presentation After 2007 subprime crisis the world is no longer the one we believed; unprecedented confidence crisis married with credit crunch, and G20 countries put in place massive public spending programs to save the productive system, and smooth the inevitable hard lending. The excessive public spending produced in 2010 the first public debt crisis after the subprime credit crisis: Greece. Greece reported in 2009 an unprecedented 15.4% deficit/GDP ratio, and public debt skyrocketed to 126.8%. The Greek crisis is the result of the negative business cycle over the last years, of the sluggish economic environment and poor productivity, but most of all is the product of mismanagement of public funding and unsatisfactory reporting practices. We analyze this crisis in the age of derivatives, and underline main effects that have been widely neglected so far in the public discussions and in the academia.

  4. Debt management in the age of derivatives Bt= Bt-1 + rtBt-1+(Gt- Tt) Financial innovation helps in tax saving by smart taxpayers (T); secondly, it can be used by the State itself (centrally or locally) to lower the cost of debt (rB) and to improve the cash and debt management (OECD, 2002).

  5. Greek financial operations from 2000 to 2002 Interest rate & currency swaps with Goldman Sachs in order to smooth the cost of debt, reduce foreign exchange exposure (i.e. exchange rate management). However, Greece lacked transparency and accountability and in 2004 Eurostat admitted that it cannot validate Greek figures, because Greece put in place unreported operations.

  6. From 2004 to 2009 • Greece has been forced to close its i.r. e.r. swaps in 2003, but did not reported the associated loss (i.e. negative gain). • Eurostat introduced accountign rules for derivatives after 2005. • Eurostat revised Greek data 4 times after 2003, but could not provide sound and reliable figures.

  7. From 2004 to 2009 • EU (2010) comments on Greek chaos: voluntary misreporting, methodological weaknesses and unsatisfactory technical procedures in the Greek statistical institute, inappropriate governance, poor cooperation and lack of clear responsibilities. • The National Bank of Greece (UK-GR private bank) financed the Greek deficit since 2004, circumventing European constraints.

  8. Euro on the sidewalk • In 2008 the National Bank of Greece accessed the European Central Bank re-financing scheme giving as collateral the notes issued by Titlos Plc. • TitlosPlc is a SPV created by the National Bank of Greece itself and Goldman Sachs, that sold €5.1 billion notes expiring on February 2039 to the National Bank of Greece. The Greek Treasury controls this bank at 100%.

  9. Rescue plan 2010 • January 2010 the crisis exploded; March 2010 110€ billion triennial rescue plan from EU and IMF (Troika). • Heavy restructuring program of public spending ( wages, pension, public employment, VAT). • Bitter social situation for youth; socio-economic structure has to change abruptly.

  10. No happy end  December 2009 ECB legalpaper“Withdrawal and expulsion from the EU and EMU” . YieldGreek bonds

  11. Greece data • Eurostatdata on Greece • IMF page on Greeceeconomics • Troika • The Economist on Greekcrisis

  12. No happy end  • Political cost of expulsion far exceed the rescue plan of Greece (in 2010). • German and France voters are not happy to pay for Greeks. • Moral hazard: what if other EU countries bankrupt (contagion effect)? PIGS & PIIGS • Italian public debtcrisisin 2011(Monti Gov.)

  13. What about other countries? After 1990 US states, Israel, Norway and other countries employed swaps to manage their debts. Some EU countries employed swaps contracts to postpone some costs, match the deficit criteria and enter the 3° phase of the Monetary Union (France, Italy and Belgium).

  14. Accounting & Monitoring • In the anglo-saxon system after 2010 derivatives are recorded in the balance sheet of public organizations (GASB, 2008). There have been some defaults before that date (e.g., Orange country, CA in 1994 and Jefferson county, AL in 2004). Corporate accounting has been applied to public organization for liabilities management. • In Europe before 2012 there were no accounting principles relating to debt-related instruments traded OTC. • The European Public System of Accounting (accrual) is not yet fully homogenous in the EU (EPSAS).

  15. Accounting & Monitoring • In the USA public managers are responsible for losses related to the office; • In most EU public managers are not responsible for losses; • Revolving doors (politics-business-banks) reduce the incentives to monitor; • Moral hazard (banks-State) spread out in the EU since bank buy Gov.bonds and sell swaps.

More Related