The Greeks’ swap probe | FT Alphaville

The Greeks’ swap probe

Der Spiegel reported last week that Goldman Sachs had helped Greece cover up part of its whopping deficit via a currency swap deal, which used artificially high exchange rates.

As it happens the Greek government has been probing the apparent misuse of currency swaps at least before February 1.

Bloomberg reports on Monday:

Feb. 15 (Bloomberg) — A Greek government inquiry uncovered a series of swaps agreements with securities firms that may have allowed it to mask its growing debts. Greece used the swaps to defer interest repayments by several years, according to a Feb. 1 report commissioned by the Finance Ministry in Athens.

The document didn’t identify the securities firms Greece used. The government turned to Goldman Sachs Group Inc. in 2002 to obtain $1 billion through a swap agreement, Christoforos Sardelis, head of Greece’s Public Debt Management Agency between 1999 and 2004, said in an interview last week.

“While swaps should be strictly limited to those that lead to a permanent reduction in interest spending, some of these agreements have been made to move interest from the present year to the future, with long-term damage to the Greek state,” the Finance Ministry report said. The 106-page dossier is now being examined by lawmakers.

According to Bloomberg, the Goldman Sachs transaction consisted of a cross-currency swap of about $10bn of debt issued by Greece in dollars and yen.

That was swapped into euros using a historical exchange rate, which produced a reduction in debt that added some $1bn of funding to the EU’s Luxembourg-based statistics office for that year. Most importantly, Bloomberg said rating companies were aware of the plan.

We have contacted the Greek finance ministry requesting a copy of the report. So far, no response. Updates if warranted.

Related links:
Goldman’s Trojan currency swap
– FT Alphaville