European Union leaders showed “moral decay” in delaying Greece’s bond swap deal in order to minimize the impact on the region’s banks, according to High Frequency Economics’ founder and chief economist, Carl Weinberg.
In a March report on the global economy, Weinberg said EU leaders had deliberately delayed Greece’s restructuring, to the detriment of its economy, in order to give banks time to prepare for the hit on their debt holdings.
“Why wasn’t Greece allowed to restructure its debt two years ago, before its economy contracted by 15 percent, and before it was necessary to impose a haircut on private sector borrowers, destabilize the government and the economy, illegally implement retroactive collective action clauses, and trigger credit default swaps ?” he asked in the report.
“It was inconvenient for the banks, that is why,” he said.
Weinberg added that EU leaders forced Greece to go through severe austerity measures in order to give banks time to deal with the debt.
“Politicians preferred to put a few million Greek citizens through the ringer than ask banks to swallow losses on government bonds before they had time to ‘prepare’… it would seem that it is not just bankers who have entered an era of moral decay, but the governments that want to regulate them as well,” he wrote.
As a creditor representative in the wave of Latin American sovereign debt restructurings in the 1980s, Weinberg told CNBC.com that these earlier deals showed that if properly conducted, Greece’s restructuring would neither have triggered credit default swap payments, nor destabilized its economy and government.
In particular, Weinberg highlighted Mexico’s 1982 restructuring and Brazil’s 1983 restructuring as “clear success stories” carried out “properly and promptly, without being enslaved to political considerations”.
Neither Brazil’s nor Mexico’s debt has required subsequent restructuring, although both nations received substantial loans from the International Monetary Fundin the 1990s.
“Mexico and Brazil both undertook reform on their own initiative, and are now model economies,” said Weinberg.
In his report, Weinberg added that Greece was in more need of investment to combat its economic woes, than “clever” restructuring.