Top political leaders said on Tuesday that they were sympathetic to demands from Greece’s prime minister for a crackdown on speculators who have been plaguing European financial markets.
But they stopped short of offering to intervene in the markets on Greece’s behalf to prevent the debt-laden country from paying higher interest rates than countries such as Germany with fewer debts.
In a series of meetings with President Obama, top Cabinet officials and leaders of Congress, Greek Prime Minister George Papandreou sought assistance fending off what he called speculative attacks that have sent the rates on Greece’s debt soaring. The leaders of France and Germany also have called for stiff curbs on speculators who they say have been driving down the euro.
“We ourselves were in the last few months the victims of speculators,” said Mr. Papandreou after meeting with Mr. Obama. “We’re not asking for a financial rescue. We’re trying to borrow on international markets on our own terms. … At the moment, we’re borrowing at high cost. It’s clear we cannot continue borrowing at those rates.”
The Greek leader warned that the crisis in Europe could eventually hurt the United States. He said he won Mr. Obama’s agreement to take up the issues involving speculators at the next meeting of the Group of 20 economic powers in June.
“For America, a weak euro means a rising dollar. That, in turn, means a rising U.S. trade deficit,” he said. “If the EU, still America’s biggest trading partner, should falter, the consequences here would be palpable.”
U.S. leaders expressed solidarity with Greece’s plight, but offered little concrete assistance.
Even as the Greek leader made the rounds in Washington, Greek labor unions called a second general strike against the government in protest of salary cuts and other drastic spending curbs the government is imposing to try to reduce its debts. The strike by more than a million civil servants was expected to, among other things, ground air traffic to Greece all day Thursday.
“Prime Minister Papandreou is to be commended for his courage in responding to Greece’s financial and economic challenges,” said House Speaker Nancy Pelosi, California Democrat after a brief meeting with the Greek leader. “The Greek people can be assured that the United States will stand with them in this critical time.”
Top administration officials deflected calls for curbs on speculators, however, saying Greece should continue to focus on the “central task” of restoring fiscal discipline and stability.
Administration officials said the comprehensive financial reform plan winding its way through Congress would deal with speculative abuses. That legislation would require a central clearinghouse for investors who use credit default swaps and other derivatives to bet against government currencies and securities, but leaves it to regulators to take direct action against abusive speculation and market manipulation.
Regulators suggested they were prepared to move only against the most egregious practice cited by the Europeans: a trading strategy where investors take out credit default swaps - which are a kind of insurance on the debts of countries - even though they don’t own any of the debt, and then benefit from driving those countries to the brink of default.
A similar tactic was used during the 2008 financial crisis, where investors stood to gain from taking out insurance on banks and then driving the banks into the ground. The legislation in Congress would enable the Securities and Exchange Commission to pursue such speculators for manipulating markets and perpetrating fraud. But regulators so far have taken little action to stop the trading strategy, which remains ever popular in world financial markets.
Gary Gensler, chairman of the Commodity Futures Trading Commission, said the tactic was on the radar screen of his agency and the SEC, the two agencies that regulate derivatives markets. But he said regulators need clear authority from Congress to address abuses in the heretofore unregulated derivatives markets.