Greece to Press U.S. to Crack Down on ‘Speculators’ (Update1)

By Shobhana Chandra
March 9 (Bloomberg) -- Greek Prime Minister George Papandreou will press President Barack Obama to help Europe combat "unprincipled speculators," who he said have roiled markets and threaten a new global financial crisis.
"Europe and America must say ‘enough is enough’ to those speculators who only place value on immediate returns, with utter disregard for the consequences on the larger economic system," he said in a speech yesterday in Washington.
Papandreou, who is struggling to convince investors his government is serious about taming Europe’s biggest budget deficit, meets Obama and Treasury Secretary Timothy F. Geithner today in his first U.S. visit since being elected in October.
"If the European crisis metastasizes, it could create a new global financial crisis with implications as grave as the U.S.-originated crisis two years ago," Papandreou said.
He and other European leaders such as French President Nicolas Sarkozy have blamed speculators for much of the surge in Greek financing costs, rather than Greece’s budget gap of more than four times the European Union limit. Germany and France are pushing for curbs on "speculators" who use derivatives to bet against Greek debt, officials in Berlin and Brussels said yesterday.
The German financial regulator, BaFin, said yesterday that market data didn’t show evidence that credit default swaps were used to speculate against Greek bonds, contradicting claims that derivatives trading exacerbated the Greek debt crisis.

Hedge Funds

Data provided by the U.S. Depository Trust & Clearing Corporation didn’t show that new open positions were built up and also doesn’t indicate "massive speculative action," BaFin said in an e-mailed statement.
U.S. authorities have told some hedge funds not to destroy trading records on euro bets, according to a person with knowledge of the requests. Greek Finance Minister George Papaconstantinou praised the U.S. efforts to scrutinize hedge funds. "It is very important for the U.S. to be on board," he said in an interview in Washington yesterday.
Papandreou singled out credit-default swaps as being particularly disruptive, saying their use to protect against a Greek default was the equivalent of allowing someone to buy fire insurance on a neighbor’s house and then burning it down to collect.

Swaps a ‘Scourge’

The swaps are a "scourge" that "haunts Greece and all of us," Papandreou said. U.S. and European regulators need to bolster regulations to curtain such activities, he said, or "a small problem could be the tipping point in an already volatile system."
Concern that Greece may need a bailout has weakened the euro and doubled the premium investors demand to buy its debt over comparable German bonds. That spread reached 305 basis points today, more than twice the level of Nov. 10. The euro has fallen 5 percent this year and slipped to $1.3615 at 8:30 a.m.
in London from $1.3634.
"Greece currently has to borrow at rates almost twice as high as other EU countries," Papandreou said. "So when we borrow 5 billion euros ($6.8 billion) for five years, we must pay about 725 million euros more in interest than Germany does."
EU leaders are also backing the creation of a lender of last resort that could come to a member’s aid the way the International Monetary Fund helps governments struggling to finance their deficits.

‘Not Sufficient’


"Our instruments are not sufficient," German Chancellor Angela Merkel told members of the foreign press association in Berlin yesterday. "The European Union must be able to respond to the challenges of the moment."
To try to convince the EU and investors that Greece was serious about trimming a deficit of 12.7 percent of gross domestic product, Papandreou last week announced a package of tax increases and spending cuts that helped the government sell
5 billion euros of bonds the next day. The Mediterranean country faces more than 20 billion euros in debt redemptions in April and May.
"We support the steps Greece is taking," U.S. Secretary of State Hillary Clinton said after meeting with Papandreou yesterday. "We commend the prime minister and his government for moving quickly to put in place the changes that are called for given the economic consequences of the fiscal situation he inherited."

Strikes, Protests

Papandreou said Greece may have a "hard time" carrying out its austerity plan if improvements are "swallowed up by prohibitive interest rates." The measures have triggered widespread strikes that have disrupted transportation and public services and led to clashes on the streets of Athens.
The premier’s approval rating slipped more than 10 percentage points in the past two months as he introduced three rounds of budget cuts. Fifty-two percent of Greeks now have a positive opinion of Papandreou compared with 62.8 percent in January, according to the survey by GPO pollsters for Mega Television received today by e-mail. A total of 45.3 percent had a negative view.