From the scant details available, it appears that Greece massaged its public finances with a currency swap from Goldman Sachs. USD and JPY were swapped into EUR at historic exchange rates, resulting in an up-front payment of $1 billion from Goldman to the Greek government – off balance sheet.
The Greek finance minister, George Papaconstantinou, protests that the use of the swaps were legal back in 2002. That is not the issue: setting historic FX rates was viewed as dubious market practice even before the activity was explicitly outlawed by the Bank of England’s grey book in the 1980s. Things always worked a little differently in currency swaps but it is hard to view Greek justifications as anything but sophistry.
The case will give further impetus to the Commodity Futures Trading Commission chairman, Gary Gensler’s drive to move OTC derivatives onto exchanges. A further irony is, of course, that Gensler worked at Goldman for 18 years, until 1997.
Meanwhile the EU finance ministers’ chairman had some choice words for the Greeks: plenty of verbal about Greece having to make more effort. Sounded like one of my school reports – most of them, actually.