Greece is considering taking legal action against US investment banks that might have contributed to the country’s debt crisis, Greek Prime Minister George Papandreou said.
“I wouldn’t rule out that this may be a recourse,” Papandreou said, in response to questions about the role of US banks in the crisis, in an interview on CNN’s Fareed Zakaria GPS.
The program, scheduled for broadcast yesterday, was taped on May 13. Neither Papandreou nor Zakaria mentioned any banks by name.
PHOTO: EPA
US stocks fell and the euro slumped on concern that Europe wouldn’t be able to contain the debt crisis stemming from Greece. The Standard & Poor’s 500 Index declined 1.9 percent on Friday, while the euro fell below US$1.24 for the first time since November 2008.
INVESTIGATION
Papandreou said the decision on whether to go after US banks would be made after a Greek parliamentary investigation into the cause of the crisis.
“Greece will look into the past and see how things went,” Papandreou said. “There are similar investigations going on in other countries and in the United States. This is where I think, yes, the financial sector, I hear the words fraud and lack of transparency. So yes, yes, there is great responsibility here.”
In the days leading up to the May 10 announcement of a loan package worth almost US$1 trillion to halt the spread of Greece’s fiscal woes, EU regulators were examining whether speculators manipulated the prices of bonds and equities and contributed to the crisis.
VOLATILITY
The Committee of European Securities Regulators said on May 7 it was investigating “exceptional volatility” in the markets and would work with other regulators, including the US Securities and Exchange Commission, as part of a coordinated clampdown.
European Central Bank President Jean-Claude Trichet said on May 6 that he was concerned about speculation in bond markets using credit default swaps (CDS).
“By first buying the CDS and then trying to affect market sentiment by going short on the underlying bond, investors can make large profits,” he said.
NAKED SWAPS
Credit default swaps are derivatives that pay the buyer face value if a borrower — a country or a company — defaults. In exchange, the swap seller gets the underlying securities or the cash equivalent. Traders in naked credit default swaps buy insurance on bonds they don’t own.
In the CNN interview, Papandreou said many in the international community have engaged in “Greek bashing” and find it easy “to scapegoat Greece.” He said Greeks “are a hard-working people.”
“We have made our mistakes,” Papandreou said. “We are living up to this responsibility, but at the same time, give us a chance. We’ll show you.”
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