Greek PM Thinks Derivatives Trades That Expose Debt Problems Should Be Banned While Those That Hide Problems Should Be Legal

George Papandreou

Greece’s prime minister is against the use of derivatives to expose underlying debt problems…but for the derivatives that hide them.


“there are kinds of questions about what kinds of use people make of things like credit derivative swaps [CDS], how opaque these markets are, how it’s not clear who’s trading what and how these can push countries…to the brink,” Papaconstantinou said in an interview on CNBC television.

Papaconstantinou suggested more regulation and transparency in the CDS market, including measures such as a ban on “naked short selling.”

Papaconstantinou defended a controversial financial arrangement between Goldman Sachs and the Greek government back in 2001, which helped mask part of the nation’s debt as it struggled to meet criteria to adopt the euro.

“What this particular bank did was a particular operation which at the time was fully legal and within Eurostat rules… similar operations were done in other countries,” Papaconstantinou said.

Ironically, the derivatives activity Mr. Papandreou defends is actually far more responsible for his country’s problems that the CDS activity he’s vehemently attacking as a scape goat. Thus if he had his way with regulations, sovereign debt problems would be buried even deeper than is the case already, while the market’s early warning signals, ie. speculative trades against a nation’s credit worthiness, would be removed.

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