The bonds affair poses rising risks for the Greek economy

Four basic conclusions may be drawn as the amazing exploitation – for political and communication purposes – of the issue of the overpriced bonds bought by social security funds continues. First, ministers were caught by surprise when the affair broke out in mid-March and for days appeared to feel themselves accountable for irregularities they were not responsible for. Under the weight of relentless criticism by a large section of the media, they did not succeed in offering up convincing answers for self-evident matters. They fell into the trap of a piecemeal interpretation of a complicated issue (the management of straight bonds is a puzzle in itself anyway, let alone that of structured bonds with tiered interest rates that has been called into question). Moreover, they had to battle against simplistic messages such as, «pension funds are losing their money,» «structured bonds should be swapped for straight ones,» «let the money be returned to the funds,» and so on. Second, the government opted for the wrong strategy in handling the issue. Instead of launching a speedy investigation to identify the culprits, bring them to justice and thus maintain the initiative, it lost time by letting all kinds of rumors go unchecked. The result was that any initiative it needed to undertake toward cleansing the affair was dragged into the «trial by television.» Third, the main opposition seized on this amazing opportunity to dilute the burden of the sins for which it was punished by the electorate in the election of 2004. In other words, PASOK succeeded in pushing through the perception (with admirable persuasiveness, to be sure) that yes, it may have suffered the consequences of cronyism and corruption but in this country the cronies and the corrupt are not restricted to one party, they are universal. Indeed, in the face of the relentless attacks on the structured bonds (sometimes also referred to as «hidden»), the desperate communication attempts of some ministers to drive home the point that transactions in such bonds did not start after New Democracy assumed office but earlier, and that the assets of social security fund faced much greater risks from the pressure exercised by the then PASOK administration to prop up the stock market after the crescendo of 1999, were surprisingly presented by the opposition as attempts to achieve political retribution – that is, a low and impermissible act. The fourth, and perhaps most important, conclusion is that of the demonization of the bonds market, the calling into question of the integrity of ministers, government officials and all those involved in the management of bonds creates a strongly unfavorable scene for the Greek economy. The credibility of the financial and credit system is shaken for no substantial reason and with unpredictable consequences in the near future. The announcement last week by JP Morgan, one of the brokerages involved in the affair, that it is willing to return the -280 million bond back to the government and agree to its annulment is a prime example of this darkening picture. It sends the signal abroad that, «in Greece they cannot properly handle matters of daily routine for us.» And the more the negative – and largely fictitious – impressions remain in citizens’ minds, the greater the risk that the wrong decisions will be made under the pressure of public opinion.

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