Simple answer: because the deeper the Europeans dig, the more member countries get covered in the same dirt. Italy did it with JPMorgan Chase, their municipalities did it with whomever they could, France did it but already got caught and reports today indicate that Belgium did it, too. Spain, which is facing its own potential debt crisis, may indeed be the only country in Europe that wasn’t approached about engaging in currency swaps to mask its debts, though it’s hard to believe investors weren’t willing to pump something into Spain’s burgeoning economy.
So despite calls by experts like Simon Johnson for more regulation of trades and even for the blacklisting of Goldman Sachs in Europe or in sovereign debt markets generally, European countries have a disincentive to do more than point fingers and talk about how it’s all Goldman’s fault. They’ve all been dancing with the debt-masking devil, be it at Goldman or elsewhere. If they kick Goldman off the floor, it’ll be easy enough to find a new partner, and if they make the dance illegal, it’s their public balance sheets that will suffer — and their politicians’ butts on the line. It’s not just Goldman whose hands will end up tied: EU member countries will end up tying their own hands as well, and everyone knows politicians hate to be left with nothing but transparency and honesty.