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Equally murky is the exact effect of Goldman Sachs' transactions on Greece's publicly reported national accounts. Since the deficit was a comfortable 1.2% of GDP in 2002, it is more likely that the cashflows were either used to help lower the debt/GDP ratio from 107% in 2001, to 104.9% in 2002 (by funding buybacks) or to lower interest payments from 7.4% in 2001 to 6.4% in 2002. But why did the large negative market value of the swaps not appear on the liability side of Greece's balance sheet?
The answer can be found in ESA95, a 243-page manual on government deficit and debt accounting, published by the European Commission and Eurostat in 2002. As revealed by Piga, the drafting of ESA95's section on derivatives was the subject of fierce arguments between the government statisticians and debt managers of certain eurozone countries.
The statisticians wanted derivatives-related cashflows to be treated as financial transactions, with no effect on deficit or interest costs, and with the derivatives' current market value stated as an asset or liability. The debt managers opposed this, insisting on having the freedom to use derivatives to adjust deficit ratios. The published version of ESA95 reflects the victory of the debt managers in this argument with a series of last-minute amendments.
Goldman of course claimed that Eurostat was consulted:
Eurostat then claimed ignorance:
Eurostat is apparently like many of us. The past is the past. There is no history there. But of course, Eurostat is then also claiming incompetence by claiming ignorance since the publishing trail for the deal is widely known. Only Eurostat seems unaware.
Perhaps the powers that be are relying on journalistic amnesia. After all, the very person who wrote the original 2003 article, Nick Dunbar, recently wrote a piece about the deal in which he seemed to aver that the deal was first uncovered in 2010. Either Dunbar has much editorial oversight in his work or else he has a severe amnesia about the things he himself has previously written about.
Did people know? Well, if you're following the budget deficit reports of the countries in the Eurogroup's sights, you already know that statistical manipulation is still occurring. Whereas Ireland has been prevented from properly logging the nature of outstanding banking debt that the nation is responsible for, Portugal has been allowed to shift debt (1.9% of GDP) from its current account to a pension account which is strictly off the books and thus allows Portugal to meet its requirement.
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