Goldman helps Greece meet EU targets using large derivatives deal

US investment bank Goldman Sachs has structured a €10 billion swaps ($11 billion) contract to help the Greek government meet its European Union (EU) debt targets.

Goldman used ‘off market’ cross-currency swaps to effectively extend a loan of about €1 billion ($1.1 billion)to the Greek government, which it will have to repay in the future along with interest payments and fees running into hundreds of millions of euros. The deal also helped the country to lower reported interest payments.

Due to loopholes in EU debt accounting rules, the deal was not disclosed in Greece’s published accounts. The emergence of the off-balance-sheet deal coincides with a number of eurozone countries facing increased scrutiny from Brussels about excessive debts and budget deficits.

Although cross-currency swaps are widely used by both companies and governments to manage their exchange rate risks, the Goldman deal was deliberately structured ‘off market’ to help Greece to manage its debts. The majority of such deals rarely enter the public domain.

. The full details of this story are published in the July issue of Risk.