Goldman Sachs (GS) Swaps Concealed Greek Deficits

Anger is growing as news breaks that Greece may have been using Goldman Sachs Group Inc. (NYSE: GS) derivatives to conceal its budget deficits as early as 2002.

Christoforos Sardelis, the former head of Greece’s Public Debt Management Agency, said in an interview that Greece turned to the Goldman Sachs Group in 2002 to get an additional $1 billion in funding by doing a swap on $10 billion of debt.

This allowed the Greek government to delay payments and reduce the government deficit that it reported.

The use of the swap to conceal budget deficits by Greece is of interest not only because of the problems the country faces today.

Greece initially didn't meet the standards set for Euro membership in 1999 because of its budget deficits, so it's a cause of concern that shortly after joining the Euro in 2001 it was actively concealing budget deficits.

Risk Magazine reported the swap in July of 2003 and Sardelis claimed that the EU’s statistics office, Eurostat knew of deal but Eurostat spokesman Johan Wullt says that Eurostat was not aware of the transaction until recently.

Greek Finance Minister George Papaconstantinou said that the swaps were legal at the time they were done but they are no longer legal, so Greece refrains from using them any longer.

A blame game seems to be emerging as European politicians begin focusing on Goldman Sachs Group role in facilitating the swaps.