LONDON Feb 22 Goldman Sachs (GS.N) has defended
the cross-currency derivatives it conducted for Greece in 2001
which reduced the country's debt as a common currency risk
management procedure consistent with EU debt reporting rules.
The US bank said that it did the deals to reduce foreign
denominated liabilities of Greece, which had become a priority
following the nation's entry into the single European currency.
"The Greek government has stated (and we agree) that these
transactions were consistent with the Eurostat principles
governing their use and application at the time," said Goldman
Sachs in a statement on its website on Sunday.
Details on the nine-year old swaps have re-emerged after
several months of concern about Greece's budget and debt levels.
The country has battled to establish credibility over
reducing its budget deficit, which at just under 13 percent is
more than four times the 3 percent level stipulated by
Goldman has explained the derivatives in the context of EU
rules on unhedged foreign currency debt which stated that these
had to be converted into euros using the year-end currency rate.
Therefore a rise in the dollar or yen, currencies in which
Greece had frequently issued debt, increased the country's
To mitigate this currency risk, in December 2000 and in June
2001, Greece conducted cross-currency swaps and restructured its
cross-currency swap portfolio with Goldman Sachs at a historical
implied foreign exchange rate, the U.S. investment bank said.
This was a practice commonly undertaken by European
sovereigns, Goldman Sachs said.
These transactions reduced Greece's foreign denominated debt
in euro terms by 2.367 billion euros and, in turn, decreased
Greece's debt as a percentage of GDP by just 1.6%, from 105.3%
To offset a fall in the value of the swap portfolio Greece
and Goldman Sachs entered into a long-dated interest rate swap.
The new interest rate swap was on the back of a newly issued
Greek bond, where Goldman Sachs paid the bond coupon for the
life of the trade and received the cash flows based on variable
In total the currency and interest rate hedges reduced the
Greece's debt by a total of 2.3 billion euros.
(Reporting by Alex Chambers; Editing by Ron Askew)