Swaps Agreements Damaged Greek Economy, Probe Reveals (GS)

A probe by the Greek government revealed that swap agreements with securities firms may have helped it to keep its burgeoning debts hidden. These swaps were used over a number of years to defer debt servicing payments. Between 1999 and 2004, the Greek government had taken $1 billion from the Goldman Sachs Group, Inc. (NYSE: GS), through a swap agreement.

“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,” a Greek Finance Ministry report said.

“Greece used accounting tricks to hide its deficit and this is a huge problem,” Wolfgang Gerke, president of the Bavarian Center of Finance in Munich, and Honorary Professor at the European Business School, said in an interview. “The rating agencies are doing the right thing, but it may be too little too late. The EU slept through this,” added Gerke.