Put together Greek bureaucrats and U.S investment bankers and what do you get? A state-of-the-art way to quietly run up even more public debt.
Der Spiegel, the German news magazine, says that Greece’s accounting fiddles are even more elaborate than people thought. Beginning in 2002, the country allegedly used various derivative transactions to legally circumvent the European Union’s rules on government debt and deficits.
Der Spiegel says the latest revelation continues Greece’s long tradition of cooking the books: “The Greeks have never managed to stick to the 60% debt limit and they only adhered to the 3% deficit ceiling with the help of blatant balance sheet cosmetics. One time, gigantic military expenditures were left out, and another time billions in hospital debt.”
The new twist is the use of cross-currency swaps in which the Greek government issued debt in dollars and yen then swapped it for euros, while agreeing to exchange that money back into the original currencies at a later date.
Der Spiegel says that the swaps were constructed with the help of—you guess it—Goldman Sachs. It says the U.S. bank “devised a special kind of swap with fictional exchange rates. That enabled Greece to receive a far higher sum than the actual euro market value of 10 billion dollars or yen. In that way Goldman Sachs secretly arranged additional credit of up to $1 billon for the Greeks.”
While contravening the spirit of the EU rules, this kind of transaction is perfectly legal. Nobody, though, appears to be rushing forward to claim credit for the deal. Der Spiegel says Goldman declined comment on the matter, as did the Greek Finance Ministry.
If the German publication is right, Greece’s financial situation is even worse than thought. When its bond issue matures in 10 to 15 years, Greece will have to pay up for the swap transactions.
Don’t worry about Goldman, though. Der Spiegel says it sold the swaps it held as part of the deal to a Greek bank in 2005.
Freelance business journalist Ian McGugan blogs for the Financial Post.