Giving Credit Where It's Due: Speculators didn't destroy Greece

Wall Street Journal
Editorial
December 9, 2010

Well, what do you know? Credit-default swaps didn't cause Greece's fiscal collapse last spring after all.

That's the conclusion of a study by the European Commission. The paper was drafted in the run-up to the Greek bailout, but has belatedly come to light following a freedom of information request from the Dutch newspaper Het Financieele Dagblad. Last March, as Greek bonds tumbled and the price of credit-default swaps on the country's debt soared, Greek Prime Minister George Papandreou repeatedly blamed "speculators" whose "abuses" of the CDS market and the bond markets were, he claimed, to blame for Greece's predicament.

So the Angela Merkel of Germany and French President Nicolas Sarkozy joined Mr. Papandreou in calling on the European Commission to investigate whether over-the-counter credit-default swaps—which pay the buyer if a debtor can't or won't make his payments—were being used to manipulate the sovereign debt markets.

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