Greece Said to Have Arranged Swaps With 15 Banks

Posted: July 29, 2014 in ΕΛΛΑΔΑ, ΕΥΡΩΠΗ, WORLD VIEWER
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(Update1)

George Papaconstantinou, Greece’s finance ministerhttp://www.bloomberg.com/apps/data?pid=avimage&iid=i9LTRy206o1o

Feb. 22 (Bloomberg) — Greece arranged swap agreements with about 15 securities firms, including some payments from banks that may have helped hide the country’s true deficit, according to a person with direct knowledge of the contracts.

The swaps that allowed Greece to receive payments upfront date from before 2008, when European Union regulators changed rules to limit the use of the contracts, said the person, who spoke on condition of anonymity. Goldman Sachs Group Inc., which provided Greece with about $1 billion in funding in a 2002 swap, may have arranged the biggest of the contracts, the person said.

The EU accounting watchdog ordered Greece last week to provide information on its swaps as it probes whether the country used derivatives to hide the extent of its budget deficit, and if other countries used them. Swaps are typically designed to help countries to manage their debt rather than generate cash, according to Cesare Conti, a business professor at Italy’s Bocconi University.

“Upfront payments don’t necessarily lead to hidden debt,” Conti said in a telephone interview from Milan. “If swaps are used to manage obligations, rather than increase them, they’re beneficial.”

Concern about Greece’s ability to finance its deficit and debt have roiled financial markets since the government revealed the country had a budget shortfall of 12.7 percent last year, more than four times limit allowed for those countries using the euro, and the highest ratio in the 27-nation European Union.

Primary Dealers

The spread, the premium investors demand to hold Greek 10-year notes instead of German bunds, Europe’s benchmark government securities, reached 396 basis points last month, the most since the year before the euro’s debut in 1999. That compared with an average of 57 basis points in the past decade. A basis point is 0.01 percentage point.

The 15 banks that have swap agreements with Greece are among the country’s so-called primary dealers, said the person. Greece had 21 dealers last year, including Citigroup Inc., Barclays Plc and Morgan Stanley, according to the country’s central bank.

Spokesmen for Goldman Sachs in New York and Morgan Stanley in London declined to comment. Officials at Barclays and Citigroup in London didn’t have an immediate comment.

“Governments seek a large number of swap counterparties to reduce the exposure to any one bank,” Conti said.

An official for the Greek government didn’t have an immediate comment. The swaps used by Greece were “at the time legal,” Greek Finance Minister George Papaconstantinou said on Feb. 15. The government doesn’t use the swaps now, he said.

Government Inquiry

A Greek government inquiry uncovered this month a series of swaps agreements that have allowed the government to defer interest payments to a later date, causing “long-term damage” to the country. Greece’s central government debt totaled 298.5 billion euros ($406.8 billion) at the end of 2009, according to the Finance Ministry.

German Chancellor Angela Merkel said on Feb. 18 it would be a “scandal” if banks helped Greece massage its budget. French Finance Minister Christine Lagarde, speaking on France Inter radio the same day, said that even if the swaps were legal, they probably contributed to instability.

Greek government bonds tumbled last week amid concern the country may not deliver measures to trim its budget deficit, and as the EU promised assistance without specifying what form it would take. The yield on the benchmark 10-year Greek government bonds rose 32 basis points to 6.46 percent last week.

To contact the reporter on this story: Elisa Martinuzzi in Milan at emartinuzzi@bloomberg.net

To contact the editor responsible for this story: Edward Evans at eevans3@bloomberg.net

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