Merkel Slams Greek ‘Scandal’ as Goldman Role Examined

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By Tony Czuczka

Feb. 18 (Bloomberg) — German Chancellor Angela Merkel said it would be a “scandal” if banks helped Greece massage its budget, as European officials investigate Goldman Sachs Group Inc.’s role in Greek efforts to conceal the size of its deficit.

“It’s a scandal if it turned out that the same banks that brought us to the brink of the abyss helped fake the statistics,” Merkel said in a speech in northern Germany late yesterday, without naming Goldman Sachs directly. Greece “falsified statistics for years.”

Merkel’s comments came as her government questioned whether Goldman Sachs, Wall Street’s most-profitable securities firm, helped Greece hide its deficit as it struggled to comply with European Union limits. Michael Meister, financial affairs spokesman for Merkel’s Christian Democratic Union, said Feb. 15 that a swap agreement managed by New York-based Goldman Sachs in 2002 “broke the spirit of the Maastricht Treaty,” which paved the way for the euro.

European Union regulators this week ordered Greece to disclose details of currency swaps and an inquiry by the country’s Finance Ministry uncovered a series of agreements with banks that it may have used to conceal mounting debts. The swaps were employed to defer interest payments by several years, according to the Feb. 1 report by the Athens-based ministry.

Eurostat Inquiry

French Finance Minister Christine Lagarde, speaking on France Inter radio today, said that even if the swaps were legal, they probably contributed to instability.

“Eurostat will look at this question to determine how Goldman Sachs helped Greece defer its obligations,” she said, referring to the EU’s Luxembourg-based statistics office. “We need to know if it was legal. If it was legal, we must ask if it was good for stability — probably not.”

Goldman spokeswoman Monika Schaller in Frankfurt declined to comment when contacted by phone today.

Merkel’s remarks, made during a 30-minute speech to party supporters, followed opposition from within her coalition to providing any financial aid for Greece. Horst Seehofer, leader of her Bavarian allies, said yesterday that “not a single euro” should go to Greece from Germany. Members of her Free Democratic junior coalition partner also say they oppose aid.

Assailing banks is a way to “blame someone outside the family” after Merkel, presiding over Europe’s largest economy, agreed to let the EU consider aid for Greece, Irwin Collier, an economist at Free University in Berlin, said today in a phone interview. “It’s a crowd pleaser.”

Support Falls

Support for Merkel’s coalition has fallen since her Sept. 27 re-election as the three parties squabble about taxes, welfare and solar energy. The Free Democrats fell to the lowest level since 2005, while Merkel’s Christian Democrats gained 1 percentage point to 35 percent, a weekly Forsa poll showed yesterday. The parties’ combined tally of 42 percent support compares with 48.4 percent at the election. The Feb. 8-12 poll of 2,503 voters has a margin of error of 2.5 percentage points.

In her speech, Merkel linked the euro and a constitutional amendment passed by Germany last year to reduce its own budget deficit.

“Just as Germany is trying to set down a sensible budget policy, we expect of other countries in the euro group — and I say that specifically with a view to Greece — that they pursue the same policy,” Merkel said in Demmin, in her home state of Mecklenburg Western-Pomerania. “In this economic crisis, you can’t live beyond your means.”

Athens Action

Officials in Athens have committed to reduce the budget shortfall from 12.7 percent of gross domestic product in 2009, the EU’s biggest, to 8.7 percent this year. The government of Prime Minister George Papandreou has pledged to slash the gap to the EU limit of 3 percent in 2012 by cutting spending, freezing wages, raising taxes on items such as alcohol, and cracking down on tax evasion.

Greek Finance Minister George Papaconstantinou said on Feb. 16 that the government was “ahead of the target” in its deficit-reduction plan, even as European finance ministers agreed the government will have to take more measures to cut its deficit if it fails to satisfy the European Commission next month.

–With assistance from Helene Fouquet and Mark Deen in Paris and Patrick Donahue in Berlin. Editors: Alan Crawford, Leon Mangasarian.
To contact the reporter on this story: Tony Czuczka in Berlin at aczuczka@bloomberg.net

To contact the editor responsible for this story: James Hertling at jhertling@bloomberg.net

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