Greek Central Bank Accused of Facilitating Naked Short-Selling of Its Own Bonds

Vasso Papandreou, a senior deputy in the governing Greek socialist party and a former Commissioner of the EEC, has accused the country’s central bank of encouraging naked short-selling of its own bonds by modifying the regulations on Greece’s HDAT electronic bond trading platform last year.

According to the Financial Times, Mrs. Papandreou (no relation to Prime Minister George Papandreou), made the charges on Wednesday in a written question to parliament.

The six-page question, addressed to Finance Minister George Papaconstantinou, set out details of measures taken by the country’s central bank in 2009 that appeared to facilitate naked shorting. First, emphasized Ms Papandreou, the central bank extended HDAT’s bond settlement period from T+3 (trading plus three days) to T+10 in response to a request from the Association of Greek Banks. Second, the bank abolished penalties for investors who did not deliver a bond on the settlement date, in a move that allowed failed transactions to be continuously recycled.

“The Bank of Greece knew the country’s negative fiscal situation. Why did it facilitate the speculation?” asked Ms Papandreou, a recipient of the prestigious medal Legion D’Honneur by France’s Francois Mitterand.

Ms Papandreou’s question, notes the FT, was supported by another 10 politicians in the Hellenic parliament,  reflecting growing concern in the Socialist party over an apparent policy contradiction in the handling of Greece’s debt crisis.

This contradiction becomes even more apparent considering Greece’s Prime Minister George Papandreou has repeatedly blamed hedge funds and currency traders for aggravating his country’s problems and making it harder for Greece to borrow money.