The OECD disagrees.

I think you are laboring under misconceptions.

Read this: http://www.risk.net/risk-magazine/feature/1498135/revealed-goldman-sachs-mega-deal-greece

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.

In particular, ESA95 states in a page-long `clarification' that `streams of interest payments under swaps agreements will continue... having an impact on general government net borrowing/net lending'. In other words, upfront swap payments - which Eurostat classifies as interest - can reduce debt, without the corresponding negative market value of the swap increasing it. According to ESA95, the clarification only covers `currency swaps based on existing liabilities'.

Legitimate transaction

There is no doubt that Goldman Sachs' deal with Greece was a completely legitimate transaction under Eurostat rules. Moreover, both Goldman Sachs and Greece's public debt division are following a path well trodden by other European sovereigns and derivatives dealers. However, like many accounting-driven derivatives transactions, such deals are bound to create discomfort among those who like accounts to reflect economic reality. For example, the Greece-Goldman deal may be of interest to credit rating agency Standard & Poor's, which upgraded Greece's long-term debt from A to A+ in June 2003.

That Greeks "lied" to get into the eurozone is yet another canard poisoning the relations. But it serves the bankers well to say, "We didn't know."

It is doubly odd that the left's ire at Goldman Sachs is used in this case to buffer the position of the banks. Pretty odd that.