by Guest

contribution by Josh Ryan-Collins

Early last year, the investment bank Goldman Sachs came under massive criticism for helping Greece raise $1 billion of off-balance-sheet funding in 2002 through a ‘currency swap’.

EU regulators apparently knew nothing about until February 2010.

At the time, Goldman was criticised for helping the Greek financial situation appear considerably better than it actually was, making it easier for the country to enter the Euro. After the Enron scandal in 2005, Goldman sold the swap to the National Bank of Greece.



Over the last ten days, two democratically elected leaders of sovereign European states were forced from office without any form of consultation with their people. At the same time, the new President of the European Central, Mario Draghi was put in to place.

Astonishingly, all three men have strong links to Goldman, as revealed in this Le Monde article.

Draghi was vice-president of Goldman Sachs Europe between 2002 and 2005. He was responsible for “companies and sovereign” which oversaw, among other things, the “currency swap” deals (Draghi denies he was involved in the Greek one).

But at least Draghi was appointed to post in the expected fashion. Greek premier George Papandreou made the mistake of attempting to give some democratic legitimacy to his departure by offering a referendum. He was forced to resign. His replacement, Lucas Papademos, was in charge of the Greek Central Bank from 1994 until 2002 and thus oversaw Goldman’s “swap” deal.

Elsewhere, Silvio Berlusconi has been replaced by Mario Monti, ‘international adviser’ to Goldman since 2005 (a post he immediately resigned upon taking office).

Writing in the Atlantic magazine in May 2009, Simon Johnson, ex-Chief Economist at the IMF, wrote:

Elite business interests – financiers, in the case of the US – played a central role in creating the crisis, making ever-larger gambles, with the implicitly backing of the government, until the inevitable collapse. More alarming, they are now using their influence to prevent precisely the sorts of reforms that are needed, and fast, to pull the economy out of its nosedive. The government seems helpless, or unwilling, to act against them.

Some serious questions must now be asked about democracy in the Eurozone. What Draghi, Monti and Papademos also have in common is that they are classically trained orthodox economists who have spent a good part of their lives working for the European bureaucracies and banks that have bought about this disaster.

These so called ‘technocrats’, bought in to calm the markets, are not proposing alternative policies.

Instead, they are proposing a policy formula we know doesn’t work: massive cuts in public expenditure and the welfare state, along with regressive tax rises, can only ever harm demand and growth, drive unemployment, increase inequality and economic insecurity, weaken monetary sovereignty and eventually lead to the removal of fiscal (tax and spend) powers.

Meanwhile, talk of breaking up the banks, regulating them more effectively or even imposing a tiny financial transaction tax remains, largely, talk. These guys may have Goldman Sachs’ vote, but I doubt they have that of the European people.

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Josh Ryan-Collins is a Senior Researcher, Finance & Business at New Economics Foundation. Longer post here.