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Paul Vallely: The vultures circling over Greece

by
18 January 2012

Speculators are seeking to accelerate eurozone turmoil, says Paul Vallely

Just before Christmas, a nursery-school teacher in Athens found that one of her pupils had come in with a note from her mother. It read: “I will not be coming to pick up Anna today because I cannot afford to look after her. Please take good care of her. Sorry.” It was not an isolated event. A Greek Orthodox centre for the poor of Athens has found four children on its doorstep, including a baby only a few days old.

The economic crisis in Greece is biting deep, in a country where state welfare is now unable to cope with the scale of the problems, particularly in Athens, where traditional family bonds have shrunk under the strain of metropolitan living.

Those who are abandoning their children are not, the charities say, the long-term poor. They are people who had good jobs until last year, when their shops and businesses were forced to close, and unemployment reached nearly 19 per cent, civil servants saw their income shrink by 40 per cent, and the economy went into free-fall for a third consecutive year, in a country that appears to have neither the ability nor the will to carry out the economic reforms it has promised to imple­ment in exchange for aid from the rest of the EU.

A complex interaction of consumer indebt­edness, political mismanagement, and European wishful thinking is responsible for the mess. The Tory thinker Jesse Norman MP has said that the solution lies in reverting to a proper free market and abandoning the “crony capitalism” that created our current problems (Comment, 13 January). But recent developments in Greece sug­gest that there is an even more malign dimension to the moral bankruptcy of modern finance. The proponents of vulture capitalism are circling over the eurozone, not just hoping to profit from its general misfortune, but seeking to accelerate it.

It is now fairly clear that hedge-fund speculators are not just gambling on Greek failure, but doing their best to bring it about. They have been buying Greek government debt at a discount, paying as little as 20 cents for each euro-worth of debt, from banks keen to get the toxic debts off their books.

Greece has to renegotiate a tranche of bonds that are due to mature on 20 March. The IMF has asked debt-holders to write down voluntarily 50 per cent of the face value of the debts. But the vultures are planning to drop out of any discount deal that other bondholders make, and demand pay­ment in full. They hope that Athens will let them get away with it in order to save itself poli­tical embarrassment. That way, they hope that, within a few short months, they will net as much as a 150-per-cent profit on what they paid for the bonds.

In case that strategy fails, they have bought insurance contracts, known as credit-default swaps, costing only eight per cent of the face value of the debt. These pay out if Greece has to default on the bond repayments. A number of these UK and European hedge funds have collectively built up sufficiently large positions, as much as €125 billion of the debt, to scupper the bail-out deal if they are not allowed to opt out of it. This means that they win either way.

Who will bear the cost of that? People like the mother who abandoned Anna to the care of her nursery teachers. Who will profit? The vultures whose activities are now exposed are not, as some have claimed, merely marginal to the functioning of the global economy, but a key influence on it. So much for the lie that unregulated capitalism functions as a morally neutral creator of wealth in the modern global economy.

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