World Business

Greece to probe US banks' role in crisis-PM

(Agencies)
Updated: 2010-05-17 10:42

ATHENS - Greece may investigate US investment banks and their role in the run-up to the Greek debt crisis which has shaken faith in euro zone economies, Prime Minister George Papandreou said in comments broadcast on Sunday.

Wall Street and major banks around the world are attracting scrutiny from regulators who are looking at transactions that occurred in the run-up to the subprime mortgage meltdown and financial crisis.

US prosecutors are already conducting a broad criminal investigation of six major Wall Street banks to determine if they misled investors.

"We are right now having a parliamentary investigation in Greece which will look into the past and see how things went the wrong direction and what kinds of practices were negative practices," Papandreou told CNN.

"There are similar investigations going on in other countries and in the United States ... I hear the words fraud and lack of transparency. So yes, there is great responsibility here," he said. Asked whether there was a possibility of legal action against the banks, he said: "I wouldn't rule out that this may be a recourse also ... but we need to let the due process proceed and make our judgments once we get the results from the investigations."

The European Union and International Monetary Fund agreed a 110-billion euro ($140-billion) bailout of Greece a week ago after Greek bond spreads hit record highs which meant Athens could not service its debts.

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The Greek government has been forced to make swingeing spending cuts and hike taxes in an attempt to reduce its deficit from some 13 percent of GDP to the euro zone target of 3 percent.

Papandreou said his government had already cut its budget by 40 percent in the first quarter compared to last year and that revenues from VAT were also up by 10 percent.

But the measures are likely to come at a huge social cost and investors are watching closely the tide of anger and protests welling in Greece and looking to see whether Papandreou's Socialist government will withstand the public pressure or go soft on the reform programme.

But even as large protests regularly fill the streets of Athens, opinion polls show most Greeks believe the EU-IMF package was necessary to put the country back on track. Most however believe the burden is being unequally shouldered by ordinary people, while the wealthy and politicians prosper.

Papandreou said he was determined to succeed.

"What we are saying is that we are ready to make the changes. Greece is a proud nation, we have made our mistakes, we are living up to this responsibility, but at the same time give us a chance, we'll show you," he said.